Clayton v Clayton [2015] NZSCTrans 21; [2015] NZSC Trans 21 (1 September 2015)

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IN THE SUPREME COURT OF NEW ZE	ALAND SC 23/2015 [2015] NZSC Trans 21
BETWEEN MA THE V	MARK ARNOLD CLAYTON RK ARNOLD CLAYTON (AS TRUSTEE OF AUGHAN ROAD PROPERTY TRUST AND OTHERS) Appellants
AND	MELANIE ANN CLAYTON
	Respondent
	SC 38/2015
BETWEEN	MELANIE ANN CLAYTON
	Appellant
AND	MARK ARNOLD CLAYTON
MA THE V	RK ARNOLD CLAYTON (AS TRUSTEE OF AUGHAN ROAD PROPERTY TRUST AND OTHERS) _Respondents

Hearing:	1 September 2015 2 September 2015 8 September 2015
Coram:	Elias CJ William Young J Glazebrook J Arnold J O’Regan J
Appearances:	M J McCartney QC and K E Sullivan for Mark Arnold Clayton C R Carruthers QC and A S Butler for the Trustees D A T Chambers QC and J R Hosking for _{Melanie Ann Clayton}

May it please Your Honours, I appear with Mr Butler for the appellant in appeal 23 and the respondents in appeal 38.

May it please Your Honours, I appear with my instructing solicitor, Ms Hosking, for

Yes, may it please the Court, I appear for Mr Clayton with my learned friend, Ms Sullivan.

Counsel, I have been in a meeting but I have just got your agreed order of appearances. Our preference had been to hear the two appeals sequentially, because we think that that's a more intelligible way to deal with it rather than altogether, but is that going to cause problems? So we’d hear appeal 23 first and then appeal 38.

Well, what I thought would be sensible, since although the Court’s posed those questions actually they’re all inter-related, and we thought really that the, the Mr Clayton should go first in the 23 appeal and that Mrs Clayton would go first in the 38 appeal, which is really her appeal. Because although there is the issue of sham,

that's actually very hard to separate from, or may be hard to separate from the arguments about property in any event.

Well, the difficulty with that, Your Honours, is that, if you're talking about Mr Clay –

Well, I have a question about that that I’ll come to, but if we first of all deal with the

Well, I’ve got one discrete question on clause 7.1 of the trust deed, which on my learned friend’s argument doesn’t seem to have been put seriously in issue. So it would be, that would be the only argument I would be making and – which is why we agreed that the burden of the case really falls on Mrs Clayton because all other aspects of the questions really fall on her.

Well, surely – I don’t want to interfere with the way that counsel think the matter should best be presented, but there is a lot of repetition. The two appeals do seem to be relatively distinct. The substantive burden of the argument in appeal 23 really is the Mr Clayton interests, if I can put it like that for the moment, particularly if it is not being accepted that the trust assets are matrimonial property. So really –

Well, Your Honour, can I just deal with this? Because in the issues that are before the Court are sham, illusory trust and the 7.1 clause. Now, that's just in relation to the Vaughan Road Property Trust.

Now sham and illusory trusts are issues on which I succeeded in the Court of Appeal and they are issues for Mrs Clayton to argue, not Mr Clayton. The 7. –

It’s simply that the appeal that clause 7 does not mean that this is matrimonial property, which is the principal case that you are advancing, is rather difficult to separate from the sham argument. In some respects that is the converse of the proposition that – or, really, you almost call that in aid of your argument, that it is not property. But if – Ms McCartney indicated she had no difficulty with the order that I proposed with the two appeals being heard serially. Ms Chambers, do you have a problem with that?

No, Your Honour, no. My submissions started with a kind of global introduction but then did divide into the two separate appeals.

So there’s two points, Mr Carruthers, I think, really: whether we hear the two appeals

Yes, it is, yes. And can I just deal with the second appeal, because on the 44C –

– you’ll appreciate from the submissions which we file that we were really assisting the Court with those in the sense that it’s not, it’s not a case that is against the trustees of the Claymark Trust, it’s really a case against Mr Clayton. And my learned friend Ms McCartney has prepared submissions on that and I propose to say to Your Honours that I would defer to her and not address my written submissions on

– they’re there, but the substantive point is really her argument. So in that second appeal I really have the section 182 issue only. So I’m perfectly content to have them heard sequentially, but I would like to hold to agreement that we made that Mrs Clayton opens on what are the, what are really the primary issues.

All right. Yes, all right, well, we’ll stick with the order that you’ve agreed, that's fine.

– and we’re a little mystified by that, because you’ve proceeded I think on the basis that only the trustee is an appellant, whereas leave was granted to Mr Clayton as well as Mr Clayton qua trustee. Are you adopting Mr Carruthers’ submissions for Mr Clayton?

I’m sorry about the confusion in this regard, Your Honours, I really do apologise, and I’m pleased I’m here to speak on behalf of Mr Clayton in the relationship property sense. In relation to the issues arising over sham trust, illusory trust, clause 7.1, I have been involved in seeing all of the submissions. If anything arises that affects Mr Clayton I would be grateful if I could speak to it, but I do believe that the trustees’ submissions cover his position too.

– you are adopting Mr Carruthers’ submissions, is that the case, in terms of 23,

Does Your Honour mean Mr Clayton’s capacity as trustee of the Vaughan Road –

In relation to the matrimonial property dispute, Your Honour, the submission made by Mr Clayton, which is advanced in the submissions that are filed, deals with two main issues: one, whether the Vaughan Road Property Trust assets are relationship property, so if it’s all set aside, if that were to happen, where does it get Mrs Clayton is really the question, given the finding in the Family Court that the whole of the property at date of hearing – at date of separation was separate property, so that's the first point. The second point –

Sorry, so this, the argument that is advanced for Mr Clayton in appeal 23/2015 –

– is that that the question as to whether the Vaughan Road Property Trust is relationship property is answered by what you say is the finding in paragraph 42 of the Family Court decision, is that the short answer?

It all comes back to separate property, or to property owned by an entity that was associated with Mr Clayton before the relationship started and which, by the Family Court Judge’s finding remained separate property throughout.

All right. So as first appellant you are adopting the submissions that Mr Carruthers makes in appeal 23/2015, is that the answer, except that you would like to be heard if there is something additional you want to add?

Yes, thank you, Your Honour. And the second point is, that I advance on behalf of Mr Clayton, is that sight can be lost of the fact that this is still a relationship property hearing. In the end it still has to be a just division of property.

And the way in which these matters have proceeded through the Court is that sometimes it seems, with respect, that the focus has gone away from an overall just

division to dealing with issues in isolation. So in the submissions I advance on behalf of Mr Clayton I will be trying to bring the focus back to the overall just division and that has been difficult before the Courts for the reason that none of the Courts had quantified their judgments.

– and that's principally raised in support of your response to appeal 38/2015, is that the submission?

It is, but it has application to the other appeal also as to what happens, depending on

All right. The reason I raise this is that in both lots of submissions filed on behalf of the Clayton interests, if I can call it that, there seems to be some point being made which almost suggested that Mr Clayton didn’t regard himself as an appellant in SC23/2015, and I wanted to clarify that. You are maintaining your appeal, Ms McCartney, are you?

Oh, I see. Because I’m looking at the intituling and I see that it’s Mr Clayton as trustee of the Vaughan Road Property Trust. Is this in relation to the questions, Your Honour, would you mind if I just asked that just so that I –

If you look at the original application you’ll find that first applicant was Mr Clayton and the second applicant was Mr Clayton in his capacity as trustee.

And the leave was granted in respect of the question of the power of appointment to

I see, all right. Well, that appeal is maintained in relation to the power of appointment. Thank you for clarifying that.

It was, I can see what happened, it was the two, the two appellants put their application for leave in together, I can see how that happened.

All right. Well, then, with that clarification we’ll proceed first to hear the appeal in SC23/2015, hearing first from Mrs Clayton’s counsel, then from Mr Carruthers, who has the principal carriage of the division of argument between the two appellants, and you may add anything to that that you see fit, Ms McCartney, and then we will proceed to hear the second appeal in which, again, Mrs Clayton, since she brings the appeal, will go first.

Yes, Your Honours, I do have a road map, which I’ll hand up now. So from the road map you’ll see that I was intending to do an introduction, which I’m still going to do, and I was intending to deal with the section 44C and 182 submissions first, but I’ll change that to deal with the –

Is that all right? I don’t want to throw you out but we think it would be more useful for

Yes, Your Honour. There may be some points in the 182, 44C, that I just need to double-back on –

– and one of them is the role of counsel and the role of the trustees, which we’ve already struck. So I do want to deal with that, because I think that that is indicative of what’s gone wrong with these trusts. But I’ll come back to that.

So I want to just start by making some broad umbrella comments before digging down into the facts. So as to my introduction, I do say that this case is a case about capturing the fruits of the marriage where some of those fruits have been diverted into trusts created by the husband and controlled by the husband, and that is the issue which confronts this Court.

The context, as Ms McCartney said, is the Property (Relationships) Act, it is for all of these appeals. And I want to start with Reid v Reid [1979] NZCA 30; [1979] 1 NZLR 572, 580, 605 and

610, because we stand on the shoulders of that the great Court of Appeal decision, which remains the pre-eminent decision in regard to this area. So Reid v Reid, I refer to it in my submissions at 84 and 85, the PRA is social legislation which creates a different set of obligations for those in qualifying relationships from laws that deal with the property of strangers. The Act is neither a technical statute nor a part of the law of property in any traditional sense.

Yes, good point. It’s at 85 of my submissions, it’s straight out of Reid v Reid, 84 and

85. It’s my submissions in 23. “The Act is neither a technical statute nor part of the law of property in any traditional sense. The PRA represents the culmination of a gradual process of statutory reform which leaves the property of the persons within its jurisdiction to be dealt with by a set of rules very different from those which govern the property of strangers in common law. It is social legislation in its widest general application.” Mrs Clayton’s case is that the Act is sufficient in its subject, scope and purpose, to address the elephant in this courtroom, the often devastating effect of relationship breakdown on women and children. To achieve the Act’s aims of just division, having regard to the economic advantages and disadvantages – well, what could be a bigger disadvantage than millions of dollars going into a trust – and enhancing equality, the provisions of the Act should be read in a fashion that prevents Mr Clayton using trust structures to defeat equal sharing of the fruits of the

marriage. In this case, Mrs Clayton says the legislation itself, the terms of the trust deeds and the facts establish that Mr Clayton’s ownership remained there all the time, cloaked by trust deeds to conceal the reality of this ownership. When it suits him, he takes the cloak off, for example, when he’s wanting to borrow money to buy

$3.3 million houses or invest in other sawmills. Mrs Clayton relies on overseas cases because the overseas cases in the United States, UK, Hong Kong, Australia and Canada have all dealt with the very issue you’re dealing with, and they’ve dealt with that in the context of legislation which did not say, “And by the way you divide trust assets.” It was legislation which said you look at property, sometimes using the word “resources” as part of the definition, and the final Courts in all of those jurisdictions have come to the same conclusion, that is, for this area of law core family values trump, and to achieve fairness, where it is appropriate, control of trust assets get taken into account in property to be divided. We are left behind, we are the only jurisdiction of equivalency who have not dealt with this issue. It’s time. The overseas jurisdictions without exception have taken a robust approach, looking at the reality of the spouses’ circumstances, rather than the presumptions afforded by equity. The overseas jurisdictions have focused on the core family law values of achieving fairness, particularly for women. Mrs Clayton seeks that this Court does the same thing.

Now in 23 in particular, but also to some extent in 38, Mrs Clayton puts up a number of options to solve the problem. Some of them solve the problem for all future cases, the issue of fruits of the marriage going into trust. Some tinker. They’ll solve the problem for Mrs Clayton but not for other cases. Mrs Clayton urges a result which gives a comprehensive remedy to this issue. It’s unlikely that this Court will have these issues before it again in the near future.

Now, so I want to go now with Your Honours’ leave to the road map, and the section,

the provisions in regard to 23 start with, start at page 6 under “Property”.

6. Well, actually, they don’t, they don’t really. They start under page 4, sorry.

I want to start – so the heading is, “Sham, illusory, lack of intention to create a trust,” that first bundle of issues, then I, in the order that Your Honours have directed the issues are to be addressed, and then I go on to deal with interests, being property.

I want to start off with some of the facts, and I am submitting that the facts show that Mr Clayton, Mr Clayton’s own evidence, is entirely consistent with the property being his property. I want to go first of all to his first – oh, no, I’m slight out of synch. Sorry, Your Honour, because we’re slightly out of synch here.

I want to go first of all to volume D, to Mr Clayton’s first affidavit. It’s at 891 of the orange volume – 892. So this is Mr Clayton’s first affidavit, and there’s some parts of this evidence which will be of assistance. Now he says in paragraph 2, “We had a relatively happy marriage,” he says he still loves Melanie, and there’s absolutely no dispute by anyone that this couple worked, both worked very hard in this 20-year relationship. 3, “As Melanie says, we had a traditional marriage. I felt a strong duty as the breadwinner to provide for Melanie and our family,” that's what he was doing during the marriage, that's what the money was for in regard to these two trusts where she’s a beneficiary, “I was providing for Melanie and the family.” Furthermore, there was never any suggestion to the contrary. “I did not keep her in the dark. I merely felt the responsibility of running the business and all the pressure with that entails fell to me. It was in these circumstances that I did not think it was necessary to discuss the operations of the business with Melanie. As she accepts, Melanie never asked me for much information.” So he’s saying, “Look, I did it for us. She didn’t understand that all this property was going to trusts, et cetera, I never told her, but I did that to protect her. In retrospect I accept that I may have been too controlling with regard to money, although I would emphasise that we never actually had a lot of money available, inherent in the nature of the business.” He accepts he’s controlling, he’s controlling in nature, these trusts and the evidence establishes that he intended to control it.

Sorry, what’s this submission directed at, what’s this narrative, what submission do

No. And then paragraph 28 on page 896, he says he’s aggrieved, that the financial affairs were a ruse, and that in fact it was designed to protect Melanie from a real contingent liability, “The financial affairs have been structured not to disenfranchise anyone,” well, let’s make sure they don’t –

“But rather to protect all of the assets from the litigious marketplace in which the Claymark Group operates.” So from that I submit that you have a man accepting that he was working for the benefit of the family, the wealth was for the family, for Melanie and the children, and that he didn’t intend the structures to stop her receiving her entitlement, never intended to disenfranchise her. And yet effectively he is trying to do exactly that now.

I want to move in the same bundle please to page 1022, which is Mr Clayton being cross-examined about the Vaughan Road Property Trust.

Line 16. “Isn’t it correct, Mr Clayton, that you settled the Vaughan Road Property Trust?” “I’m unsure.” He doesn’t even know that he settled it. Gets shown the trustees, and shown where he signed it, goes through the definitions that he’s the principal family member, then page 1025 he’s asked, having gone through the trust deed, line 11, “Well, does that refresh your memory about the Vaughan Road Property Trust?” “No, it doesn’t.” He hasn’t got a clue. Further down the line, line

26, “What are your duties as trustee, Mr Clayton?” “Not sure.” He hasn’t got a clue. “What do you think they are?” “To be honest, I’m not sure.” “Can you give me any examples?” “I,” over the page, 1026, “look, I have no idea.” “Okay, what documents did you sign in your capacity as trustee for the Vaughan Road Property Trust?” “Documents that are put in front of me?” and it’s got a question mark, he must have said it as a question mark, as a question, he hasn’t got a clue. “Who put them in front of you?” “William Giesbers it could have been or Ryan Cheshire, my people advised me.” Line 28, “So in respect of the Vaughan Road Property Trust, can you give me an example of a transaction where this has happened? That’s in regard to putting documents in front of you.” “No, I couldn't.” 1028, he’s asked about, “You’ve been asked about land being purchased by the trust,” the documents are put in front

of him, and the question on line 4 is, “So what we can deduce from that is that on

$284,000 from Vaughan Road Properties Limited, with me?” “Yes.” Further down, “Who decided that?” Line 11, “Honestly, I don’t know.” “Was it you?” “I honestly don’t know.” “Could have been?” “Don’t know.” Page 1030, line 4, he’s been asked about the distributions to Claymark Trust, because this trust, Vaughan Road Property Trust makes a lot of money, I’m going to take you to the accounts, it makes about

$500,000 a year as an owner of land that the mills are on, and it sends money off to the other trusts, including distributions to Claymark, because Claymark Trust is a beneficiary. So he’s asked about that, “Who made the decision to distribute that income to the Claymark Trust?” “I have no idea.” “Was it you?” “I have no idea.” “Well, was it you, was it you?” “I don’t recall.” “But these accounts have just been prepared, haven't they,” because Ms Hunter has asked him about the accounts for

2010, “just prepared?” “Correct.” “So who told the account to put $171,000 to the credit of Claymark Trust?” “I honestly don’t know.” “Well, when were these account’s prepared, Mr Clayton?” “31 March, same year as the hearing.” “That's this year, isn’t it?” “Yes, they are.” Question mark at the bottom of 32, “Did you make the decision to distribute the income?” “I’m not sure.” “It’s a lot of money,” over on 1031, “I put it to you that someone other than you directed that, didn’t they?” “I honestly don’t know.” “And then in terms of what you told me earlier, someone will put these accounts in front of you at some stage and ask you to sign them, won’t they?” “That's, that's usually what happens, yes.” “Where are the trustee minutes for the operation of Vaughan Road Property Trust?” “I don’t know.” “Do you know if you ever signed a trustee minute for the Vaughan Road Property Trust?” “I don’t know.” “What considerations,” there aren’t any, by the way. There’s one that purports to give a distribution to the two daughters, which never actually happened, and I’ll come to that in the evidence. But other than that, that's it, it’s undated. “What considerations were given to the split of the trust income between Stacy and Claymark Trust on one hand and Anna on the other?” “Look, again, I don’t know.” “Who would have made that split?” “Honestly, I don’t know.” “And so I can take it from that question,” on line 24, “that given William Giesbers and Bryan Cheshire probably sorted this out?” “I would suggest so, yes,” says Mr Clayton. So he’s taken back to the spreadsheet and asked about his current account because between 2005 and 2007, oh, just when this marriage is disintegrating, Mr Clayton takes $5.2 million out of this trust, 5.2 million, and is, in the movements in his current account, “Do you remember, we talked about this before the adjournment,” and that's back at page

1018, because he’s asked, “Where did that money go, where did the $5 million go?”

and he says, “I have no idea.” “Do you understand, Mr Clayton, that in effect what

has happened is that the Vaughan Road Property Trust has paid you 5.2 million?” “Um, it could of.” And he says, line 11, line 12, “I don’t, look, I don’t know a lot about these things.” Well, that's the understatement of the century. And then 1032 there’s a discussion about the current account, and I’m going to bring you to this evidence, but there he is confirming under cross-examination that he accepts as a matter of principle that the debt lent to the trusts needs to be divided between husband and wife in regard to the current account and that Mrs Clayton would be responsible for half of the debt of this debt owed to the trusts at the point of separation, “But also entitled to the asset, wouldn't she?” “I would have thought so.” Now, that's important because actually all he’s doing is confirming his earlier affidavits which I’m going to take you to.

So that evidence is a good introduction to the cloak of the trust which Mr Clayton seeks to hide behind. And Mrs Clayton says that the evidence establishes that Mr Clayton had – I’ve rather lost my track...

Mr Clayton had no idea in regard to the operation of the trust, he had no idea of his obligations, it’s evidence that he effectively treated the property as his own. Not only were there no fiduciary obligations under the trust deed, even if there were he wasn’t going to take any notice because he couldn't even remember signing the trust deed let alone reading it.

So I then want to move on to the evidence in regard to Mr Clayton’s presentation to third parties, and that's in volume G at page 1918, and it’s under tab 74. Now the history of this document’s important too. It only came out immediately before hearing and only as a result of Mrs Clayton getting discovery against the BNZ. Mr Clayton never produced it. At the same time that Mr Clayton was in the Family Court saying his business was worth nil and they’re trusts and you can’t touch them, he was trying to borrow money to buy another sawmill – the Profiles transaction, I think it is a sawmill, well, it’s a similar industry anyway. This is the information Mr Clayton gave to the Bank of New Zealand and the relevant paragraphs are page 1920,

second-to-last paragraph, “This structure is designed to keep the Profiles business

“This structure is designed to keep the Profiles business totally separate from Mark Clayton’s existing assets, which are all part of a matrimonial property pool that is subject to ongoing dispute with Mr Clayton.” He sees them as his assets, and what he’s trying to do is buy Profiles but hide it from Mrs Clayton and keep it separate from the relationship property interests. But what’s particularly important is the language Mr Clayton uses with his bankers, Mr Clayton, Mark Clayton’s existing assets. So then we go through, 1923 is of some interest in terms of these proceedings as to how Mr Clayton sees the proceedings, in that it states that everything that Mark Clayton currently owned is considered relationship, but the more important – and 1924, the second-to-last paragraph sets out his plan to use Profiles to buy back Clayton, the Claymark Industry if it gets sold as a result of the relationship property proceedings, so he’s a real little charmer in terms of planning to disenfranchise his wife in regard to a fair division. But perhaps the most important page is 1925, where Mr Clayton says to the BNZ before the Family Court proceedings, “Here is the Clayton net equity.” He rips his cloak off and says, “Here I am.” What’s in his Clayton net equity? It’s not Claymark, it’s Clayton. All of the trusts, all of them. So there he is, and he presents almost the same information, as the evidence establishes, in regard to the purchase of a house in Mount Maunganui for $3.3 million at the same time. And you’ll find the cross-examination on this document at volume D page 1081, and he’s been asked about the page 1925, which of course shows him as having wealth of nearly $28 million, $28 million, and his submissions here today say, well, Mrs Clayton’s getting 6 million and she ought to be happy with that. He says meanwhile to his bankers, “I’m worth 28 million.” So it’s put to him by Ms Hunter, line 16, “It attributes that equity to you,” it’s written down there. “So at least your position to the bank is you have an entitlement to the equity in those

trusts,” it’s what it says, that's what it says. “The document refers to,” it’s line 27, “has been referred to as being the composition of the property pool elsewhere in the proposal, isn’t it?” “Yes.” But he says this doesn’t go ahead. Well, that's true, the BNZ doesn’t amend, but it doesn’t make any difference for our purposes. And then

1083, line 5, “Isn’t it interesting, Mr Clayton,” that to this Court you’ve relied on Mr Hagen and, Messrs Hagen and Dent to say that your business is worthless,” that's what he was saying in the Family Court, it’s worth nothing, “while at the same time you're representing to the BNZ a value in the pool of nearly $28 million.” Answer, “What about its debt?” “It’s the net equity, Mr Clayton.” “If that's what it says.” Well, it is what it says, you can see for yourself, Your Honours. And then the purchase of the apartment – I won’t spend long on this – and it’s at 1086, he’s asked about the purchase for the apartment for $3.3 million, he borrows it, and to that lender too, because he borrows some of it, not all of it, he presents a very similar document to BNZ17. Now that document was also produced in the Family Court, and you’ll see at page 1089 20 the question from Ms Hunter sayings, “The schedule you gave to borrow money for your $3.3 million house was very similar,” and he confirms it –

1089 – well, we have it here, Your Honours, it was produced as an exhibit but it’s –

No. Where – it was produced as an exhibit but it’s not in the bundle, is that so?

So the, it’s the, the exhibit is referred to on page 1090 as being produced, the letter from Karl McKnight with the schedule. But it’s very similar to BNZ17, and on that basis he is lent money to buy the apartment. So all that evidence is at 1089 and

Now that view of Mr Clayton that he is beneficially entitled to all of the trust property is still his view, and we know that from the presentation to the High Court, and you’ll find this in Mrs Clayton’s bundle of authorities for 38, which is a decision of His Honour Associate Judge Matthews when Mr Clayton was refusing to pay costs orders and as a cons – to Mrs Clayton, and as a consequence was in the bankruptcy Court.

This document you’ve just handed up does identify the assets, I mean, it calls it, “The Claymark Group,” at the top of the page, so he’s not saying they’re his assets, is he, he’s saying they’re assets of the Claymark Group, whatever that is? Oh, actually no,

he’s not, sorry, I think I’m wrong about that, because the Claymark Group at the top

– net equity it says, but then the trusts seems to be dealt with separately don’t they?

I think that will – I actually haven't got a copy of it in front of me, Your Honour, which

Oh, look, I have a copy. Yes, now, the important thing is the word, “Clayton Profile,”

Because remember, you see what he does, Claymark is the company and also one of the trusts, and of course that's a combination of Mr Clayton’s name, Mark and Clayton, that’s where he gets it from, which is kind of a nice little irony, but Clayton is him, nothing else is Clayton. So Claymark Group is the company, which is relationship property because the trust, the shares were in Mr Clayton’s name and not trust property, and that's 18 million, which is the bulk of the relationship property. But the heading, “Clayton Profile,” is the key point, Your Honour.

At page 101, and I want to take Your Honours to 114. So this is after the Family Court hearing when Mr Clayton is facing bankruptcy for failing to pay cost to Mrs Clayton.

So in those proceedings Mr Clayton produced an affidavit from Mr Giesbers – I can see Justice Young’s already got the point – and in the affidavit by Mr Giesbers, his right-hand side, he says, “My confirmation as to Mr Clayton’s solvency was based on the schedule of the equity held directly and beneficially as recorded in the financial statements of the various entities as at 31 March 2013, annexed marked ‘A’,” and he refers in this annexure as a consolidated position statement based on the financial statements of all the entities referred to. Exhibit A sets out a total of $29 million which Mr Giesbers describes as, “Total assets and entitlements of Mark Clayton as at 31 March 2013,” and it’s derived by two lists, assets of $15 million-odd as total assets owned directly by Mark Clayton and assets of $13 million as described as, “Total assets of Mark Clayton, Mark Clayton as beneficially entitled to,” and those are the trust assets. If Your Honours want that affidavit I have it here. But there he is in the High Court saying, “I’m beneficially entitled to all of the interests in these trusts.” Now he can’t take the cloak off for some purposes and pop it back on for others, like something in Harry Potter, he can’t do that. Do Your Honour’s want a copy of that affidavit?

Now I want to insert here and discuss the role of the trustees in regard to this litigation, which was something I was intending to cover in regard to the appeal 38, but I will cover now. Because in these proceedings the role of the trustees is indicative of Mr Clayton owning the trust property. Mrs Clayton is a discretionary beneficiary of both the trusts that Your Honours have to deal with. She’s never been asked what the position of the trust should be in regard to this litigation. They have consistently sided with the husband and –

It’s actually and the Clayton – the Claymark, sorry, and the Vaughan Road Property

Because Mr Clayton’s the only trustee of the Vaughan Road Property Trust, is that

So this submission is in regard to both trusts. So not only have the trustees consistently taken the husband’s position, it’s worse than that, because the trustees have effectively argued Mr Clayton’s case for him in a number of respects and this, I say, indicates control and ownership.

In regard to section 44C, only the trustees, it is only the trustees who have argued against the application of that section throughout the Family Court, the High Court the Court of Appeal, until now. That is why the assumption was made that Mr Clayton would not be personally represented. Mr Carruthers took that role throughout. Furthermore –

But that just could be – oh, well, the significance of that. I understand the point you make about control, but what’s the significance in terms of how they’ve chosen to divide up the argument?

Well, the trustees are effectively representing Mr Clayton’s personal interests and have done so, against the interests of a beneficiary, Mrs Clayton. Now it gets worse than that, because if you look, if Your Honours look at the Family Court transcript, the shares in the timber business are owned by Mr Clayton personally, that was always a personal property issue, it was really a valuation issue. Who cross-examines Mrs Clayton’s expert? Well, Raylee Harley appearing for Mr Clayton –

But was that objected to? I mean, it’s a bit like the way the argument apparently is being – I do understand the point about the degree of control directed at your argument of sham, but as to how the matter is divided up in argument it’s a bit like what’s happening today.

And in fact the Evidence Act 2006 says, it comments on it, but the objections of Ms

So can I just pause you there? What was the – this was related to the valuation of what asset?

They personally owned, they’re not trust assets. It is Mr Carruthers for the trusts who cross-examines –

Nothing to do with trust ownership, nothing. And other issue in this regard is that the arguments in regard to both these appeals – all issues in these appeals have throughout all of the Courts been run by the trustees. Now I know that Your Honours raised the issue of Mr Clayton being on the original document, but that was I suggest pretty clearly in regard to the leave application in respect of valuation of the shares, that's what Mrs Harley and Mr Clayton were seeking leave on. They didn’t get leave. In all of the Courts, all of the arguments before Your Honours were only argued by Mr Carruthers on behalf of the trustees.

So what was the, what objection was taken in – you say Ms Hunter’s objection was overruled but what was the objection, to the trusts, to the trustees taking an active role?

The objection was taken in regard to Mr Carruthers as representing the trustees cross-examining Mrs Clayton’s expert in regard to valuation issues relating to the personal property of Mr Clayton.

But there wasn’t a more general objection to the role being allowed to be taken by the trustees in the litigation?

But I’m raising because, one, I think it’s indicative of Mr Clayton’s approach to the trust that’s consistent with Mrs Clayton’s argument that effectively he can’t differentiate between himself and the trusts, and secondly I’m raising it because when you look at that recent Hong Kong case of Kan Lai Kwan v Poon Lok To Otto & HSBC International Trustee Ltd (2014) 17 HKCFAR 414 they address that issue. And, you know, this is what happens, the trustees roll along and invariably side with the property-owning spouse. They ignore the fact that the wife is a discretionary

beneficiary and they’ve come in, as they did in Poon and as they do in just about all

of these cases, and say, “Oh, we’ll side with the property-owning spouse.”

Have there been any cases where a trustee has been removed, where someone like Mr Clayton has been removed as being unable to bring a dispassionate mind to the conflicting interest of the beneficiaries?

That’s right, although they can, you could argue that the High Court can use its inherent jurisdiction to remove his power of appointment of trustees at the same time.

I mean, the conflict between beneficiaries could be removed by having one beneficiary.

That's right. So that is why I think here has – I just want to come back to the point that Justice Glazebrook raised, that is the intituling in regard to the original leave application was like that because Mr Clayton in his personal capacity sought leave in regard to the valuation issues relating to the shares, that's the only aspect that he sought leave on, and if you look at Ms McCartney’s submissions for leave, that is the only thing she addressed, and that is entirely consistent with the way Mr Clayton’s run this case.

But doesn’t that give Mr Clayton a problem, because he has an order against him that the power of appointment is relationship property and that order would stand if he didn’t appeal against that finding –

– and it wouldn't matter what the trustees did because the trustees have got nothing to do with it, it’s nothing, it’s no skin off the trustees’ nose whether the power of appointment is relationship property or not, I would have thought.

I agree, or when there’s a 44C order against Mr Clayton. But Mr Clayton hasn’t –

But the point is, Your Honour, is this, that Mr Clayton hasn’t felt that he needed to argue those points because he’s just rolled up with the trust’s lawyers to argue them, and by the way they’ve been funded out of the trust.

But what does it matter? I mean, we’ve got both appellants before us, we can – and so have all the Courts who’ve dealt with this matter – so if objection wasn’t taken and the case proceeded in what seems to have been a fairly sloppy and repetitive way in the lower Courts, because essentially we’ve got two lots of very similar submissions, what does that matter beyond the point that you're entitled to take from it that it indicates control of the trust?

It probably doesn’t matter, except I do wonder whether in those circumstances Mr Clayton can now suddenly pop up in his individual capacity and say, “I want to be heard in regard to 23.”

Well, we want him heard in his individual capacity, because otherwise we don’t have a matrimonial property case properly constituted. If he’s not going to appeal then the order in the Court of Appeal presumably stands. So it’s clear that he is seeking to appeal that, and we really need to get on and hear it, don’t we?

Yes, I see your point, Your Honour, and I’ll move on to the next point in my road map,

Trust, starting with volume E, which is the yellow volume, and I want to take you to

1402 as the starting point. So just to commence looking at these accounts, looking at the 2003 column you will see that the Vaughan Road Property Trust has no third party debtors, it doesn’t borrow money off any banks. Instead it –

Yes. But in 2003 you will see that Mr Clayton has lent the trust interest-free $3 million. It’s only got assets of five million. There’s Mr Clayton using what we say is relationship property to fund the Vaughan Road Property Trust. And if we go please Your Honours to 1429, this is statement of financial position in regard to the Vaughan Road Property Trust as at 31 March 2006. Now – so that's just before separation –

1429. The front page is at 1425, it’s ’06 accounts, but if you look at 1427 they’re actually signed off by KPMG on 4 April ’07. So after separation the parties are litigation mode. So looking at 1429, there is the rental income, and I’m just pointing out the fact that this trust has a substantial income of about half a million dollars a year, that's basically rent received from the Claymark Industries, the holding company, because it owns the land on which the mills operate, that's how it operates, that's the essence of this trust. And then if you go please to 1431, ’05 and ’06, ’05, just looking at Mr Clayton’s loan, there’s still no outside lenders, third party lenders, PanaHome is a Clayton company, there’s Mr Clayton in ’05 still lending the trust interest free $3 million, ’05, just before the marriage disintegrates. ’06 he’s already stripped it down to 1.6 million. And 1471 is the next year – sorry, is the 2008 and

1471. By this stage it has completely changed and Mr Clayton owes the trust money. He now owes – and you’ll see it in current assets, 1471 – he now owes the trust 2.1 million in 2007 and 2.2 million in 2008. So he’s stripped out $5 million from this trust between 205 and 208. So he’s –

It was, Your Honour, that's right. It’s him using the trust for his benefit, interest-free.

Yes, no, I understand that. I’m just really wondering about how it’s being revealed in your presentation, because we’ve already been taken to the cross-examination where he accepts that. One would have thought that you had sufficient foundation for the submission that you make. I’m just wondering about – I mean, it’s useful to go

to the actual statements of financial position, but I wonder then why we went to the cross-examination.

Okay. Well, I suppose because it was there at the time. Sorry. Well, let me just finally check off these accounts because –

I’ll just, I will take you to volume G, which is the cream-coloured volume, 1983, because that shows post-separation this big surplus coming into this trust of 481,000, so you understand that this is the cash producer which is used to fund effectively Mr Clayton, and there he is on 1984 owing even more money, 2.7 million, interest free, and if you look at 1984 and the equity of this trust, he, in fact the equity’s only

4.8 million according to the accounts, 56% of that equity has been given interest free to Mr Clayton, because he’s owed 2.7 million, 56% is actually in his hands, which he’s using post-separation. Now –

So you still have to say why the assets in the trust were relationship property –

I need to take you back – because I, in my submissions I dealt with this under the earlier, the appeal under 38 – to page 2 of my road map please, to point 2, because it’s exactly the same evidence for both appeals that it’s relationship property. So we say his advances and gifts to the trusts were relationship property –

You're at page 2 and point numbered 2. This is proving that the advances in money he lent to the trust were relationship property, and it’s the same evidence for both appeals. Now the most important point is this: Mr Clayton conceded in the Family Court that the money owed to him by the trusts and any debts back, any debts he owed them, were relationship property, he conceded it, there was never an argument. Now where did he concede it? Well, he concedes it in both his opening submissions and his closing submissions. This has never been disputed in any Court up until now, and I have copies of both.

Well, are you relying on anything in the Family Court decision? I’m just wondering whether it’s necessary for us to go back to the submissions that were made or –

What happens in the Family Court is that they don’t deal with quantification –

– which is a frustrating thing. But so the Family Court decision doesn’t deal with saying that the current accounts are relationship property. But I don’t think that matters because it’s already been conceded, and it is clear as crystal. Are Your Honours happy for me to hand up these or would you rather –

Well, no – yes, hand it up, thank you. But the concession, I’m struggling to see how the lack of dealing with quantification affects the acceptance of the status of the payments.

No, it doesn’t, he’s, he has accepted right from the beginning that these were

And this is an end, in my submission, to any argument that these advances to these trusts were anything other than relationship property, it’s the end of it. So if Your Honours look first at the opening submissions, the relevant part is paragraphs

12 and 13. There is Mr Clayton saying he accepts that you value these current accounts at separation, he accepts that –

Opening submissions, Your Honour, at paragraphs 12 and 13. He accepts you value them at separation and of course he’s right, it’s like a bank account, you don’t value that at date of hearing because people strip it out, or add to it, it’s unfair, it’s separation date, it’s common sense. And he says advances from the Vaughan Road Property Trust he owes two million. So he’s trying to say, “Oh, I stripped five million out, I now owe two million, I got the benefit of it, Melanie, you have to pay half of the

$2 million debt,” that's his argument, that's how fair he is. But the – so the issue of how much that Vaughan Road Property Trust debt is going to be an issue for the High Court. But there he is down the bottom saying that it’s relationship property debt. And then, in regard to the other advances in regard to the other trusts, including the Claymark Trust – do you see that in 13? – he’s accepting it’s relationship property and that it’s valued at separation. This was never an issue, and nor should it be an issue, it was screamingly obvious it was relationship property. Now just in case Your Honours think he may have changed his mind during the hearing, there’s his closing submissions, and the relevant paragraph is paragraph...

Oh, yes, yes, there it is. Yes, yes. So there they are – oh, that's the current account in the company – the advances, paragraph 82, at separation the respondent had made book value advances to, there’s the Claymark Trust, because at this stage he is owed money from the Claymark Trust, and he says that, “As at the date of hearing

there’s Mr Hagen’s evidence, the advance to Claymark Trust he values at separation, the date, “The value at the date of separation, the respondent’s advances to all the other entities is 286,000.” So there he is with the advances as relationship property in his summary of calculations, and he treats them as relationship property.

And then, so, is the argument that there was no outside debt ever, or that it was set –

– 13 years into the marriage, relationship, 13 years, and I’m going to come to this, Your Honour, but he had a little “fledgling”, to use the Family Court’s language, company, which actually had ceased to exist quite early on in the marriage, it gets struck off, all he had was shares in a little fledgling company that milled native timber. Somehow or other my friends are trying to say that these millions of dollars he advances to these trusts came from the separate property? Come on.

And that’s what was agreed as being 500,000, was it, the valuation, is that, the separate property, is that – that company relates to the separate property prior to marriage, does it? Prior to the relationship, sorry.

The – yes, it does. The 500,000 was a compromise figure to deal with any separate property items he had before marriage.

How’s that recorded? I know it’s in the judgment, but was there an agreement that

It was an oral concession by Ms Hunter. And it was based on some fixed assets as

Let’s take the morning adjournment, unless you wanted to wrap up on what you were going to...

So before the morning adjournment we were talking about the $500,000 concession and what that was based on. It’s in the cream book, page 1987, it’s under tab 82. It is G, the last volume. You’ll see this is an exhibit produced during the hearing and that first figure 1992 gives a figure of –

The concession by Mrs Clayton was obviously incredibly generous because of course this relationship started in 1986. This is six years later. Furthermore, it was, it’s fundamentally wrongs in terms of the Act because if you look at Mrs Clayton’s chronology, that sets out very clearly what Mr Clayton owned before this relationship started and what he owned was a shares in a company, the 1984 company we call it, we call it that because it changes its name a number of times, and they use Claymark names and it becomes very confusing. But all of the searches were attached to Mrs Clayton’s February 2011 affidavit setting out tracking through by company number the companies. So he has shares in the 1984 company and what that does is trades in native timber. It’s a related business but the Claymark

business now doesn’t trade in native timber. It mills non-native timber. It is a fledgling company. Only starts sawmilling in 1991. Completely different. And, of course, this company, as you can see in her chronology, gets struck off. He no longer owns the shares. But –

I just think it might be more helpful rather than taking us to where it’s asserted in the chronology, to indicate the findings of fact in the Family Court, or the – where it’s recorded so we don’t need to keep going back to primary sources, if it is accepted.

Can you, because I’m a little confused, and I did read it in the Family Court decision, but perhaps you could just take us to that paragraph?

So page 75, volume A, paragraph 65 and 66. So A is green, page 75, paragraphs 65 and 66. “There is no evidence as to the value of Mr Clayton’s property when the relationship began. There is an acceptance by the parties that a figure of $500,000 is appropriate, taking into account the value of the Banksia Place section and the two parcels of land in Vaughan Road.”

Yes, well I asked about that too but there apparently is not. That’s confirmation, is it,

That was the document, oh you mean a document recording, no it was an oral concession based on that schedule.

Yes, well that’s on her part but what’s, but this records that the parties have accepted it. That wasn’t based on any document produced to the Court, it was what was said presumably at the hearing.

That’s correct Your Honour. So going back to my road map, page 2.2, volume D, Mr Clayton’s evidence is at page 995. It’s Mr Clayton’s affidavit of March 2011 and that is again him confirming in his affidavit the concession made by his counsel that the advances are accepted as relationship property.

It was Your Honour, paragraph 25. Never argued again until this Court. And just dealing with those final points in regard to why it is relationship property, even without the concession it would be completely unfair to treat these advances as anything

else. The wording of section 9A itself says that where, that the separate property becomes relationship property if –

So is it the current version of the Relationship Property Act that the – the Property (Relationships) Act 1976 that applies? There haven’t been any, so the latest version printed will capture everything?

Well I didn’t put it in my bundle because I was not expecting this argument. And it’s not in any of my friend’s bundles. So I’m sorry, I don’t have a copy for Your Honours.

It’s 9A, it’s increasing the value of separation property, that’s the one?

It is, yes. The section appears at green 68 volume 1. And Your Honour in the Family Court finds the increase in value is relationship property both on 9A(1) and (2) and 9A(1) says, “If any increase in the value of separate property, or any income or gains derived from separate property, were attributable (wholly or in part) to the application of relationship property, then the increase in value or (as the case requires) the income or gains are relationship property.” So my friends are trying to say, well, they hadn’t separated so therefore it stayed separate without a factual basis but also ignoring the way the Act works in terms of classification of property. For example, if you look at section 8 in defining what is and isn’t relationship property, the Court must go back to see how the property was used and acquired during the relationship. It’s not the case that it somehow stays separate property right up until the point of separation. Once they separate you have to go back and classify as they acquire assets whether it was relationship property or separate property.

And Fisher on Relationship Property, the provisions that I have quoted there, is very clear on these issues, and what the learned authors say is that first of all in applying

9A the Court must bear in mind the purposes and principles of the Act including that property is generally to be divided equally, and that contributions are seen as equal, and then, and I’m quoting from 1142, that under section 9A the income or gains have to be derived from the separate property itself as distinct from the efforts of one or both of the spouses or one or both of the parties. Income derived from the work of either or both upon a separate property farm or business will normally be relationship property if it was acquired for the common use and benefits of the parties. An argument to the contrary might be mounted if it was possible to distinguish between income forming a return on separate property capital, on the one hand, and income representing a return for effort during the marriage, 8(1)(e). The way in which bookkeeping is arranged in the average farm of business makes that possibility unlikely.

So for Mr Clayton to say it all stayed separate, he has to establish that it was a passive return on his separate property, and there’s just no evidence of that. He doesn’t even keep the shares that he had. They had virtually nothing when they start off. The increase in value, and the very clear findings in the Family Court in regard to how this business was funded, and how it developed, and you can see that the Family Court had very little difficulties in applying 9A. You will see that in volume A, page 72, paragraph 55, “there is evidence of a general ongoing application in this regard and also a specific injection of salary into the business in 2002, 2003, and

2004 to capitalise companies. There is no dispute that over the years Mr Clayton has used his income, whether that be by way of drawings or salary, to put back into the business. When he was asked the question, ‘What you have been required to do, haven’t you Mr Clayton, is to put quite a bit of your income over the years back into your business?’ his answer was ‘Um, just about all of it.’ This is evidenced by the fact that during the early years of the marriage, the building of the family home in Banksia Place was put on hold for several years while any income was used to develop the business. Mr Clayton has also given evidence that ‘my income has been restricted as a consequence of capital investment and debt servicing requirements’.” He hardly took anything out of this business, he was rolling the whole lot back in to grow it. “The foregoing of income is an illustration of the application of relationship property to separate property.” And page 122 of Her Honour’s decision, no sorry...

At 43, page 122, and the – just going back, sorry Your Honours, to the evidence of the Family Court, on page 73 of the bundle there is further paragraphs where Her Honour makes very clear findings about Mr Clayton’s salary being applied to the business and 9A(1) being met. So there is just no evidence that Mr Clayton had separate property from which he could fund these trusts. So that is the submissions as to why Your Honours can be left in no doubt that, as Mr Clayton accepted right up until this Court, the advances to his trusts were relationship property and, indeed,

he’s very keen for Mrs Clayton to pay her half of the debt to the Vaughan Road

Property Trust in regard to the $5 million that she took out and had the use of.

So, sham, I’m back to page 5, Your Honours, of my road map, and I’ve finished with the evidence and I want to move on to the law. But I do say, as I say in my submissions, that there’s simply no evidence that Mr Clayton considered he was restrained in any way at all by the existence of a trust deed. He quite clearly did not consider that he had obligations at all to account to beneficiaries of any of the trusts he created, and there’s no evidence that he viewed the assets of the Vaughan Road Property Trust as anything other than his own, he could do what he liked with the assets and – this is at paragraph 25 of my written submissions, Your Honour – the only contemporaneous evidence in regard to the thinking at the time of the operation of these trusts was Mr Pepper, who was Mr Clayton’s right-hand man at the time the Vaughan Road Property Trust was settled, he was a director at the Claymark companies in 1999, and the asset planning that commenced in 1999 was described by Mr Pepper in the following terms –

I’m at 25 of my submissions, Your Honour. “Well, Mark started the company, he had grown the company and he saw that they were, that they were his, and, you know, that's the reason way back when we transferred the properties initially, Mark was the sole trustee in the Vaughan Road Property Trust, there was no one else that was involved.”

Well, what do you take from this? A clear indication of an intention to maintain control? Because there’ll be many, very many, trusts in which there is an intention to maintain control, which is not to say that there isn’t a genuine intention to benefit, at some remote point very often, those who are beneficiary entitled. So what do you take from this emphasis on control that's relevant here?

Well, I take from that, Your Honour, that where someone purports to put property into trust but maintains total control, that can’t a shouldn't be recognised as a trust, for a whole – for three alternative reasons: sham, lack of intention, or illusory.

So you say that an intention to have complete control leads to a conclusion that a trust is sham?

Well, what’s that trust that's set up for the looking after a child who’s disabled, that child is the only beneficiary, and the parents say, “As long as we’re alive we want total control over the funds because we want to make sure they’re grown in a proper manner so that they will be available to look after this disabled child for life”?

That's right. And I also mean control in terms of being able to treat the property as their property, so they have to be a beneficiary. So it’s paragraph 51 of my submissions, that there has to be, that he intended, certainty of intention, he, there’s no other interpretation, he intends to create a trust, he’s ceased to be the beneficial owner and such legal right he had has gone, it’s Heartley v Nicholson (1875) 19 LR Equity 233. So when I use “control” I mean it in that broad sense, that is that he has unfettered ability to treat it as his own properly and call on it and say, “I’m taking it.”

So control plus, plus any beneficial interest, or control plus the ability to – I mean, is this just the argument about the power to appoint to himself?

Well, there’s the narrow and the wide version. The narrow version is, in this case it’s sham, lack of intention, or a illusory trust, or the interest in the property, interest in the trusts of property, because not only did he have control, he had a clause which said he could act in his own interests. If you look at Poon –

Yes, that's, well, that is applicable in regard to the Vaughan Road Property Trust. But there’s another argument as well, Your Honour, which is what the overseas jurisdictions have said. Most of the overseas cases which have said the interests in the trust are to be treated as property for the purposes of divorce have not had this bizarre clause in it which says Mr Clayton can act in his own interests and ignore everybody else’s interests, all the other beneficiaries, they’ve still said it’s property.

So what about, so do they deal with cases where there’s control, technical constraint, but in fact an intention to act independently of that constraint?

Yes, what they say effectively, Your Honour, because Poon, the husband’s not even a trustee, there’s a trustee company in the Cayman Islands. What they say is, well, it doesn’t – that the fiduciary obligations, et cetera, don’t really matter because even then, under this trust deed, the trustees are working with the husband, he has a huge

influence on them, understandably, he’s the settlor, and if the trustees said, “Okay, well, we’re considering all of the beneficiaries and we’re considering their interests, but we have decided to distribute the trust assets to husband,” they could. So what difference does it make?

So where Poon – well, could that only be reviewed in the High Court of the Cayman

I don’t know the answer to that question, Your Honour. The trustee was represented in the divorce proceedings in Hong Kong. Do you want me to take you to Poon?

It’s a $1.5 billion Hong Kong trust, 300 million, called the Dragon Trust. And the terms of the trust deed you’ll see at page 254 – actually I might take you through the facts first rather than jump through to there. I’ll start at 227, it’s a long marriage, he’s in engineering –

227, Your Honour. He’s very successful, they have shares in a company which they’ve put into a trust and – oh, it’s actually based in Jersey, sorry, not Cayman Islands, I’m getting them muddled. Now he is the appointor of trustees so he can hire and fire. The beneficiaries were husband, wife and the three children. Two of them tragically died leaving one, Karen, alive who’s an adult.

So and Their Honours, the finding in one is a good summary. “The Court asked whether if that party were to request the trustee to advance the whole or part of the capital or income of the trust to him or her, the trustee, acting in accordance with its duties and having regard to all relevant considerations, would on the balance of probabilities, be likely to do so.”

It’s under the head note 1. And they say it doesn’t imply impropriety. The trustees could properly take into account the husband’s wishes, formal or otherwise, as to how they should use their discretionary interests. So they’re saying, you know, the reality is that he could do this. The trustees could do it and –

Well they could but they also say they would be likely to do it. So it’s not just an ability to do it, it’s there’s some –

Yes. Well Mr Clayton has taken five million as trustee for himself so I don’t think you’re going to have too many problems meeting that test. And the trustees said, well really you should allow at least a third for Karen, and they said, no. That’s incorrect because the trustees because, “Karen was only one amongst a class of beneficiaries in a discretionary trust without a vested interest and the Jersey law opinions did not support the proposition that the trustees could not dilute Karen’s

‘interest’.” And then they talk about the terms of the trust deed showing that the husband had a dominant position in regard to administration. He’d made himself protector and reserved to himself important powers, including the power to remove

the trustee. He intended the trustee to have only the passive role of shareholder, leaving it to him to run the group. It was plainly not the husband’s intention that the trust assets should be divided up or that he should relinquish his position of influence during his lifetime. Further the trustee often acceded to husband’s wishes and allowed him access to funds. When the company declared a divided the trustee had invariably complied with the husband’s wishes to distribute the money to the husband. Further, husband had been able to draw funds from the trust to satisfy awards in the wife’s favour. There was every reason to believe that the trustee would comply with the husband’s request.

And the other parts of the – page 246 of the bundle, they’re talking about Charman v Charman (No 4) [2007] 1 FLR 1246 , which is the English case, and what they’re saying at paragraph 33 is that you don’t require impropriety in regard to these issues, you don’t require that Mr Clayton, that there is a, for example, a self-interest clause. A trustee in proper control of a company will usually be acting entirely properly if after careful consideration of all relevant circumstances he resolves in good faith to accede to a request by the settlor for the exercise of his power of advancement of capital whether back to the settlor or to any other beneficiary.

And paragraph 43 on 249, Their Honours talk about Karen not having an interest protected against the other beneficiaries and they refer to the High Court of Australia decision in Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366 in terms of the position of other beneficiaries because in Kennon v Spry the children of, it’s Dr Spry and Mrs Spry, were also beneficiaries, and the wife was a discretionary beneficiary only in Spry. Dr Spry had removed himself after separation but retained control. And they talk about at 44 Karen didn't have any fixed interests and they also talk about, well, after the wife’s paid out there’s nothing to stop the trustees deciding that Karen retains a significant portion of the trust. That’s paragraph 55 of Their Honours’ decision.

And then 63 is the terms. The trustee has an absolute discretion to appoint capital,

62 and leading into 63. The husband had a letter of wishes taken in account and he had the power to remove trustees and certain powers conferred on the trustee are only exercisable with husband’s consent as protector, including the removal of potential beneficiaries and the power to alter the deed. So they say at 65, “In making himself protector, husband has reserved to himself important powers including the power to remove the trustee, obviously intending his views as to the administration of the trust to be given great weight. In making himself a potential beneficiary he intended to benefit from the trustees’ distributions of capital income. He intended the

trustees to have only the passive role of shareholder. Karen is one of the discretionary objects and has no vested interest. There is no impediment to the trustee appointing the whole or part of the capital income to a single beneficiary to the exclusion of all others.” So I’ve come to that case because what I’m saying is that you could decide, well, the Vaughan Road Property Trust is so extreme, particularly the self-interest clause, that we’re going to treat it as property. But the overseas jurisdictions aren’t hampered by this and the other cases are the same. None of the cases that I rely on have a self-interest clause in them.

What was section – where do we find section 7(1)(a) which this is decided under?

Income earner capacity property and other financial resources which the parties to the marriage has or is likely to have, so that’s a better jurisdictional clause than, from your point of view, than the property, the Relationships Property Act.

It’s my submission that it’s equivalent because, Your Honour, if you look at combined the definition of property under our Act to include any interest or right and the definition of ownership being beneficial ownership, together those two clauses are the equivalents of the Hong Kong, UK, and Australian clauses.

But it’s not equivalent to likely to have in the foreseeable future. It’s a much more expansive ...

That’s true. I don’t rely on that part but in terms of saying, well, these cases don’t

Well, I’m just trying to work out what it is that you are able to take from this case of application here and it must be tied to section 7(1)(a) because they decide it’s not a sham and the discussion on sham, which I imagine is of help to you, is of paragraph

You have to rely on right to interest and it’s a right to apply to have dealings with the trust and it’s to be valued by reference to the likelihood that your request will be acceded to by the trustee.

He has rights to distribute this trust to himself. No one can do a thing about it. That is the same –

Well, this is the argument about property, really, which does require you to focus on the terms of our statute. I’m just trying to feel for what you are taking from whom. I would have thought that to assist in terms of the test it applies to sham because on the submission you make it seems to, it may come within that test but in terms of application beyond saying, well, this isn’t extreme, they do it in other countries, it really doesn’t bolster, does it, very much your argument on the terms of – well, on the definition of property in the Relationship Property Act.

Well, I am going to argue that, Your Honour, in terms of I am going to talk about resources first and property definition when I come to that part, but at the moment what we were talking about what degree of control made a valid trust and we were talking about that there were – there was actually two different levels for this Court to consider and one is to say, well, Vaughan Road Property Trust was so extreme in its terms that he had total control.

But I’m suggesting that if you look at the overseas cases, in terms of how they’ve analysed how trusts work and the ability to control the property, that in most trusts – well, sorry, let’s put that another way – that in the trusts Their Honours have dealt with in other jurisdictions they haven’t had the self-interest clause but they’ve said, well, the bottom line is that under this trustee they can legitimately distribute to themselves and that’s what it’s designed to do so that’s all we need to worry about.

But that gives them the sufficient – yes, I see. That makes it a financial resource available and, you would say, sufficient interest for the purposes of the definition in the Relationship Property Act.

That's right, Your Honour. So that’s how I went off down that road but we’ll come

I’m just really wondering where you think – how much more time you think your argument is going to take on the first appeal. Where do you want to take us to after this?

Well, it’s referred to in the written submissions but you might want to emphasise the use of it. I’m just really asking for a further roadmap, I suppose, of where you want to develop the argument.

I’m going to talk about sham, illusory, and lack of intention relatively briefly because it really is in my submissions and I’m going to refer briefly to Raftland Pty Limited as trustee of Raftland Trust v Commissioner of Taxation [2008] HCA 21, then I’m going to get on to the property argument. So I probably have another hour, that’s all.

So at page 5 of the roadmap, sham, illusory, or lack of intention, and I have defined illusory in my submissions as being one – a trust where despite a subjective intention to create a trust, the trust deed itself does not objectively create what the law regards as a trust, and this argument really does depend on definitions. I accept that under sham trust it’s the intention at the time of the creation. So my learned friend, I think, has misread 33. The sham trust, did they intend to create a trust? If you decide, you know, there is such a thing as an illusory trust then I’m suggesting that that relates to the circumstances where someone says, “I do want to create a trust,” but in fact what they sign up to is not a trust.

Yes. Well, is the label “illusory”, does it add anything very much to saying that the

necessary ingredients of a trust are not present? That’s your second argument.

It is. You could deal with it under lack of intention to actually really create a trust, as I

say in 35. So it’s a concept of a zombie trust. I think it’s a more exciting name.

But you have the image of a person walking around who’s actually a zombie and so I do suggest that illusory trust is a concept which is helpful which covers that situation. But I also accept that if you define it, paragraph 35, my submissions, as Justice Hansen did in the High Court, a consideration in whether in light of the provisions of the trust deed Mr Clayton retains such control that the proper construction is that he did not intend to give or part with control over the property sufficient to constitute a trust, if you define it like that it really – I think the Court of Appeal is right. That actually goes to intention to create a trust. But you can see why some of the authorities and academics have said there is this separate category of illusory trust.

So moving on to lack of intention to create a trust, whether you consider that under illusory trust or on its own, I’m certainly not going to die in a ditch over that, and the necessity to create fiduciary relations. As you know, Mrs Clayton says you can’t call into account – Mr Clayton has said that the core obligations are still present in this trust and that the beneficiaries could call Mr Clayton to account in their submissions, or the trustees have.

But, of course, what would happen – let’s just go through what would happen. Mr Clayton could distribute all the assets to himself. He could, if he chose to, bring forward the vesting date. There would be nothing left in the trust to vest but he could bring forward the vesting date because he’s entitled to do all of this under the trust deed. That’s the end of the trust. Now, the beneficiaries, Mrs Clayton and the two daughters, might say, “Well, hang on a minute. You did all of that and left us with nothing and that’s a breach of trust.” Well, where did they get with that litigation? Mr Clayton immediately points to clauses 11, 12 and 14 which says he’s entitled to do exactly what he just did. They have no remedy.

So you’re saying that the effect of the provisions of this deed is that there are not

And if it was the Poon-type situation they would be met in any event by considering and then making a decision.

And administering the trust properly in terms of not stealing the assets or frittering them away on matters that are then not within the contemplation of the trust deed?

Yes. If the trust deed gave them total unfettered discretion, it’s always going to

Yes. So Mr Clayton as settlor had a choice. He chose not to burden himself with any obligations. He intended a genuine trust would not have given himself unfettered discretion. He did not give himself unfettered discretion in regard to the Claymark Trust five years earlier when the marriage was happy. Now, I have got a section here on the Magna Carta which you might think is a slightly sycophantic –

Just on the clauses, the other clause of interest to me was clause 19.1, particularly

– 1342 of volume E? “Trustee may act as such and exercise all that trustee’s powers and discretions notwithstanding that the duty of the trustee and in the particular matter may conflict with the duty of that trustee to the trust fund or any beneficiary.” So that again is another, it seems to me, indication that the sort of constraints that one would normally expect don’t apply.

That's right, Sir. Do I refer to that in the – I think I do. Yes, Your Honour’s right. That's, it’s actually littered with similar clauses, isn’t it?

I’m sorry, just harking back to the Poon case. The Poon case really decided that, it

Yes, there was a financial resource without any – the discussion about the powers was not to stop the relationship property regime from attaching to a trust because it was, because the property was held in a trust, it was looked at because in the lower

Courts a third of the trust was treated as, properly treated as relationship property and –

Sorry. And the final Court of Appeal said no, because of the power of control it was right to treat the whole, is that right?

Yes. So again, you know, you're coming to the property argument later, but on one view if the Relationship Property Act makes the assets of the trust and interest for the purposes of that Act it doesn’t matter what form it’s held, you don’t need to say that it’s sham and so on, it’s just, and you don’t need to look at, really, at the powers of control, except if there’s an argument that only part of the trust property is properly treated as the relationship property part.

Well, my Magna Carta argument is set out there clearly, so I’ll go through it briefly. But what the submission is is that when you look at Heartley v Nicholson, which is referred to in my submissions, which are these Chancery cases going back very firmly in regard to what is a trust, it’s at paragraphs 51 and 52, about, with very strong terms as to what is a trust, “You have to intend to create a trust by Acts that admit no other interpretation,” and the roots for that, I suggest, are that principle going right back to the Magna Carta that a person should not be deprived of property without due process of law. That's why we have this requirement for certainty of intention to establish a trust, and it can’t be done unless the person clearly intended for that property to be held on trust.

But this is a deferred vesting regime under the Relationship Property Act, so I’m just trying, I’m struggling to see how there’s dispossession until the Court has determined the interests of the party.

Yes, Your Honour, that's correct. I suppose that this argument goes back to the, still back at the intention to create a trust argument, and it just, how, why that is such a powerful rule in equity, and so I’m kind of an equity rather than PRA. I’m talking about intention to create a trust.

But there’s no property until, there’s no property under – your only argument for property is under the Relationship Property Act.

It is. But I’m back talking about intention to create a trust and just talking about how

High Court decision dealing with sham trusts. I summarise it in my submissions at

74, and it comes out a week after Official Assignee v Wilson [2007] 3 NZLR 45, Raftland is a tax case, the trustees of a trust which is making huge profits effectively by a tax loss trust and to put money through that to reduce tax, and the, to make it work under Australian tax laws the distributions had to go, all of the distributions had to go to the tax loss trust. In fact that's not what happened and it was just a device, and the High Court found that the whole thing was a sham. Now I’ve summarised Justice Kirby’s decision in my submissions, but the majority decision, which is in my

casebook, which is here, at 83, is important in terms of sham trust because they have a wider test for sham trusts than Wilson, and in particular they look at what happens after the trust is formed. Whereas Wilson says really you can only look at the intentions at the time the trust was created, in Raftland the trust is created in 1986 and they look at how the funds are applied, and you’ll see that on page 99 of my casebook, the paragraph 33 of Their Honours’ decision, and this is the majority decision, “The apparent discrepancy between the entitlements appearing on the face of the documents and the way in which the funds were applied,” so it’s well after formation of the trust gave rise to a question where the documents –

Midway through. So the way the funds were applied later gave rise to a question as to whether the documents were to be taken at face value. They – paragraph 35, they apply the Snook v London & West Riding Investments Ltd [1967] 2 QB 786 (CA) in regard to sham, but they say it doesn’t necessarily – paragraph 36 – require fraud, “In the present litigation it may be used in the sense which is less pejorative but still apt to deny the critical step in the appellant’s case.” And paragraph 43 also shows that they looked at events afterwards.

Well, one can understand that in terms of saying that there are particular sham transactions later. One of the difficulties I’ve always had with the, especially the Kirby test in Raftlands is how do you distinguish between a breach of trust and a

sham trust, especially vis-à-vis the beneficiaries, and if you look at, say, the Kain v Hutton [2008] NZSC 61; [2008] 3 NZLR 589 litigation Mr W A X Couper did retain control and did properly think of the assets as being his own, but to the extent he did it was in breach of trust rather than there not being a trust at all. It probably would have suited him quite well to – not that he attempted to, I must say – argue that they were sham trusts and it did all belong to him. I mean, as I say, he wasn’t arguing that in that case and I think quite rightly because the beneficiaries would have had something to say about it and again, quite rightly.

Well, the facts of this case kind of bring the whole thing into stark spotlights, don’t they, because we know the way Mr Clayton ran this trust. It was a complete nonsense and I’ll take you to that evidence, and it wasn’t a breach of trust. What he’s doing is not a breach of trust but to say, well, when considering whether or not this was a sham trust we have to ignore that, in my submission, is the incorrect approach because it’s not necessarily a breach of trust but it does – it indicates reflecting back on his intention at the time but it’s reflective of his continuing intention that this actually operate as his property, not as trust property, which means he’s using a cloak.

I can understand that part of the argument. It’s just I think if you take some of the matters in Raftland and apply them it is difficult to see the difference between the breach of others and that’s particularly just as clear in his judgment, I think, rather than the majority judgment.

Let’s say someone operates a trust in a way that – and the evidence can be used under the test both to establish sham trust and it’s also a breach of trust, does it matter if the test includes the conduct of – the operation of the trust after settlement if it’s also a breach?

No, that might not matter but it may matter to the beneficiaries if the assets of the trust go back into the settlor rather than to be left to the beneficiaries.

But no – in principle looking at the actions later depending on what you take from

Yes. But I still haven’t quite got a test which might just come back to your unfettered discretion test.

Yes. No restraint. So if Your Honours look at 104 in paragraph 47, Their Honours, the majority decision in Raftland do say that the creation of such an express trust depends upon the intention of the person alleged to have created it, so they are certainly looking at that but that same test effectively is Official Assignee v Wilson [2007] 3 NZLR 45. But they are saying that in 48, they say, “It may mean, as the full High Court in substance found that they intended to do whatever was regarded by Mr Tobin” – that’s the lawyer or tax advisor – “as necessary to secure the fiscal objective

of the exercise,” and then they do still look at conduct in deciding that the trust deed did not actually – was not intended by the settlor to have substantive as opposed to apparent legal effect in 58. So Raftland is an argument for a wider definition of sham than Wilson, in particular taking into account later conduct.

In my bundle I’ve included an article by His Honour Justice Kirby from this book in which he talks about the judicial reluctance to declare transactions shams. It’s a very interesting article where he explores that, so I refer to that.

So I’m now at property, which is the second part of this appeal, in which I will – well, I

So I start in my submissions with the definition of property in the Act and of course the context of the Act and the purpose and principles of the Act which I’ve already addressed Your Honour on. Now, the definition of property – and I’m at paragraph

94 of my submissions, 93 and 94 – is, includes any, anything in action, any other right or interest. The definition is wide, it’s inclusive, it’s not limited. And “owner” means “beneficial owner”. Now, we know, of course, that Mr Clayton has told the High Court and his bankers that he is the beneficial owner of the assets in this trust, so he sees himself as beneficial owner. The paragraph 94, I refer to Fisher and Lord Diplock as defining beneficial owner. The vital ingredients that the owner can enjoy the fruits of his or her property personally and can dispose of the property for his or her benefit, and I submit that that is, together with the definition of “property” at least as wide as financial resources and that you can’t simply say, well, the English cases and Australian cases have got this additional provision and we can ignore it because resources are assets or stock upon which one can draw when necessary. That’s the definition from the Short Oxford English Dictionary in my roadmap. Well, there is no difference, in my submission, between that and a right or interest because of our wide definition of property. Looking at “right” in my submissions at 97 includes any power, privilege or immunity secured to a person by law. Mr Clayton had those powers. He had powers and rights to distribute these trust assets to himself. That is an item of property under our Act and is effectively the same definition as resources, something you can use for yourself. So my submission is that the definitions between the various pieces of legislation are equivalent. I also, in terms of

interpreting the Act, I refer to 33 of the Act which gives the Courts power, says what powers the Courts does have in regard to relationship property and I submit that 3 is consistent with treating the interests in the trusts as relationship property because under the Act the Court can vest any property which must include, obviously, discretionary interests. It can order the transfer of rights and obligations under any instrument or contract and in order for this kind of effect has regard of any provision or term of the instrument or contract and it can order the varying of the terms of any trust or settlement other than a trust under a will. If Mr Clayton went outside into the street and said, “I’m prepared to sell all of my interests under the Vaughan Road Property Trust and I’ll transfer them to someone,” of course he would have someone willing to pay the value or close to the value of the assets of that trust, because as soon as you got all those powers under the trust deed you’d have control over the assets and if he genuinely believes they’re not property and they have no value he could have transferred them to Mrs Clayton and avoided this litigation. He hasn’t.

I wanted to finish my submissions in regard to appeal 38 just by drawing Your Honours’ attention to the overseas cases. None of the jurisdictions that we’re concerned with, the United States, Hong Kong, the UK, or Australia has legislation which says trust assets must be taken into account in divorce. All of the law that I’m referring to is a development by the Judges as to the definition of property,

effectively, and in some cases that definition includes financial resources to bring trust interests, which are part of the fruits of the marriage, into their system and as we go through, I’ll be saying that basically if you look at their systems they are remarkably similar to ours. There are differences. They don’t have separate property in relationship property but basically they look at first of all quantifying and then dividing, quantifying what there is. So I’m going to – and just the final point that the law now in those countries is that if you have property in trusts it gets taken into account in divorce has not meant the end of the world as we know it. The sky hasn’t fallen in. The trust industry remains intact.

So I want to start with Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366 and I hope to go through these reasonably efficiently. Dr Spry was a remarkable man and no doubt still is, but his trust was basically he was in control. He was – he had the power, he was the sole trustee and he had power to hire and fire trustees and he had power as the sole trustee to apply part of the income or capital to the beneficiaries. He is a beneficiary initially, then he takes himself out as a beneficiary, but his wife remains a beneficiary.

So the Chief Justice’s decision is the first decision and I want to take Your Honours to page 169. This is in my bundle for SC23. Paragraph 61, you’ll see that Dr Spry said, “You’ve got to take into account the interests of our children.” I think there were three daughters who were beneficiaries so he argues that point. 62, the Chief Justice says, “In my opinion, the argument advanced on behalf of Mrs Spry should be accepted save that it is the trust assets coupled with the trustees’ power prior to the

1988 instrument to appoint them to her and her equitable right to due consideration that should be regarded as the relevant property.” It’s one more slightly complicating factor in this. Dr Spry resettles or purports to resettle at one stage the trust assets into new trusts. But they go back to the position of the old trust.

Paragraph 64, the word “property” in section 69 is to be read as part of the property of the parties to the marriage because this isn’t the provision which deals with the word “resources”. It’s the definition of “property”. It is to be read widely and comfortably.

No. With the purposes of the Family Law Act, in the case of the non-exhaustive discretionary trust with an open class of beneficiaries, there’s no obligation to apply the assets or income of the trust to anyone et cetera. Down to 65, where property is held under such a trust by a party to a marriage and the property has been acquired by or through the efforts of that property or his or her spouse whether before or during the marriage it does not, in my opinion, necessarily lose its character as property to the marriage because the party who is declared a trust of which he or she is a trustee and can under the terms of that trust give the property away to other family or extended family members at his or her discretion. For so long as Dr Spry retained the legal title to the trust fund, as does Mr Clayton, he’s sole trustee, coupled with the power to appoint the whole of the fund to his wife and her equitable right it remained, in my opinion, the property that parties of the marriage for the purposes of the power conferred under section 79. The assets would have been unarguably property of the marriage absent subjection to the trust, and so as for the position of the other beneficiaries, it has long been accepted that in some circumstances the Family Court has power to make an order which will indirectly affect the position of a third party. Well, that’s the case in New Zealand, too. Section

44C and section 182 of the Family Proceedings Act can do the same thing. Paragraph 70 on 171, the characterisation of the assets of the trust coupled with Dr Spry’s power to appoint them to his wife and her equitable right due to consideration as property of the parties to the marriage are supported by particular factors. It is supported by his legal titles to the assets, the origins of their greater part as property acquired during the marriage, the absence of any equitable interests in them, and any other party, the absence of any obligation on his part to apply all or any of the assets to any beneficiary and the contingent character of the interests of those who might be entitled to take upon it a default distribution on distribution date.

Then paragraph 79 on 173, he’s able to treat the assets as property. He’s agreeing with the decision of Their Honours Justice Munro and Hansen as a party to the marriage, albeit subject to fiduciary duties of considerable beneficiaries, so Dr Spry didn't have a self-interest clause. This is so even though it may not be property according to the general law, so characterised for the purpose of the Family Law Act

it had an attribute in common with the legal estate, he had an asset as a trustee. He could apply them for his own benefit.

Paragraph 89 on 175, property of the parties should be read in a fashion which advances rather than constrains the subject, scope, and purpose of the legislation. In particular, the term “property” is not a term of art. It has one specific and precise meaning. It is always necessary to pay close attention to any statutory context in which the term is used. In particular, it is necessary, of course, to have regard to the subject matter, scope, and purpose of the relevant legislation.

90, they quote the Supreme Court of Canada. “The task is to interpret the relevant

And then they give in 91 the definition of property under their Act and you can see it doesn’t actually include the word “resources” there. The word “resources” is used in the division provision. It’s simply parties to a marriage that a party is as the case may be entitled, whether in possession or reversion. A narrower definition.

Would it have made any difference in that case if there had been a trustee company as the sole trustee?

Well, I don’t think so because Poon is the example of that scenario and it didn't make any difference in that case.

Yes, well, the core of Mrs Clayton’s submissions is whether the interests are property depends on the legislation and the terms of the trust deed and she, as relied, as in Spry, says well, one of the important things here is that Mr Clayton is the only trustee. It’s very hard to see clearly where he’s divided legal and beneficial ownership, so I think that that was clearly a factor in Their Honours’ decision.

Well, it is in terms of Munro and Hansen, isn’t it, but the Chief Justice is a bit more emphatic that the statute, it doesn’t much matter in what form the assets are held, so it wouldn't have mattered if it had been a trustee company and it didn't matter if – I think that’s right on my quick reading – it didn't matter that there was a power or that he was a sole trustee.

I think that’s right, Your Honour. I think that they do have – I think the Chief Justice is more emphatic but if we say, if we take the decisions of Their Honours Munro and Hansen they still say, well, it must be the context and in that context in terms of property settlement this must be property. I’m not sure whether they make any major point in regard to the fact he is the – Dr Spry is the sole trustee.

It was possibly because he wasn’t a beneficiary, so that it might have made more of a difference that he was the sole trustee because he – I’m just looking because the Chief Justice said that they don’t need to make any issue as to whether he could have reinstated himself as a beneficiary.

But there was a dual thing of it being assets of the marriage plus some aspect of control and it might have been important that because he wasn’t a beneficiary that he had that control, either de facto or actual.

I mean, in that case it was actual but de facto may have been enough on the Poon

Yes. And so paragraph 93 is the definition in regard to property settlement under

section 79 of the Act. I’ll just draw Your Honours’ attention to that to show the

legislation that the Court was operating under and the Court can make orders as appropriate. With respect to the property of the parties, altering the interests of the parties to the marriage so they, too, have the same language in regard to property interests.

Now, just as a matter of great interest, really, the finale of the Spry case is referred to in a decision which I’ve footnoted at 142 of my submissions was that Dr Spry was so cross that he as trustee subsequent to the High Court decision liquidated the trust assets into four million dollars cash in a suitcase and threatened to burn the lot and fortunately his wife’s lawyers realised that and the daughters went in and got the suitcase. I think they got name suppression. Dr Spry’s conduct did not ultimately suggest someone who had much regard to equitable orthodoxy even though that was exactly what he had argued in the High Court.

Charman v Charman (No 4) [2007] 1 FLR 1246, I want to touch on briefly because it’s the leading UK case. It’s at 279 in my bundle. This is the Dragon Trust one. I think I may have said it was Poon but actually Charman is the Dragon case. 28 year marriage. Dramatic success in the insurance industry for the husband and they go and live in Bermuda. He informs the wife that the marriage is at an end. They had assets of 131 million including 68 million in an offshore discretionary trust created by the husband upon an expression of wish that during his lifetime he should be its primary beneficiary. So the husband said the trust assets shouldn’t be treated as financial resources of the husband because it was a dynastic trust intended for the benefit of future generations, and this case followed White v White [2000] UKHL 54; [2001] 1 AC 596 and said, well, following White, which was again a Judge-made law in the UK saying not only do you quantify, the general rule is equality, which was the big movement forward, they said following White we’re going to change the approach to trusts and Charman is the decision which did that.

They rejected – this is page 280 of my bundle, the head note – they rejected the dynastic argument as being inevitable because of the obvious fiscal purpose behind the trust, the husband’s inclusion of himself as a named beneficiary, his power to replace the trustees, the contents of his letters of wishes, the absence of any documentary evidence to support his argument, the inference to be drawn from his attempts to prevent the wife having access to trust documents and other factors. And they said the test is that the Court must be satisfied, if the resources and the trust are to be taken into account, that the trustees would have advanced those

assets to the husband if he’d asked them to do so, and they said on this basis it is a resource.

And then 13, there’s the head note I was referring to before. Because of White it’s changed but since the advent of reference to proportions the focus of the Court has largely shifted from needs to computation of resources, so they’ve come, really, to the New Zealand situation where you decide what is the property pool rather than a kind of maintenance base that they were based on. Whenever such an enquiry had to be made, it was essential that the Court bring to the task a mixture of worldly realism and respect for the legal effects of trusts, the legal duties of trustees, and in the case of offshore trusts the jurisdictions of offshore Courts and the circumstances of the case it would have been a reproachful emasculation of the Court’s duty to be fair if the assets that the husband had built up in the trust during the marriage had not been attributed to him.

And page 289 gives you summary of Dragon. Husband settlor, wealth represents fruits of investment at his request in companies until the breakdown of the marriage. His wishes were that he should have the fullest access to capital and he expressed the wish to be a primary beneficiary. And then I want to finally draw Your Honours to paragraph 57 where Their Honours say, just page 291, “For reasons of policy we are pleased to find ourselves able to uphold the Judge’s attribution to the husband of all the assets in Dragon,” and they talk about the focus of White and the need for fairness, but there is a Court pleased to be able to include trust assets in division.

Whaley v Whaley [2011] EWCA Civ 617 is at 304, and the reason I refer to that is that – there was something specific – the wife was not a beneficiary of the trust, and page 312 of the bundle, 34, there was an independent trustee, Mr Hess, but they said, “Well, he’s prepared to do the husband’s bidding,” and they say, and this is important for Mr Cheshire in regard to the other trust, “There is simply no evidence of the trustee ever failing to provide funds for the husband’s needs whether in terms of business investments or assistance with the provision of homes.” “Mr Hess can be demonstrated to have fulfilled his role since the proceeding began confirms that he continues to follow the husband’s wishes.”

Now paragraph 51, page 315, it was argued, well, they would be in breach of their fiduciary duties in a number of respects if they provided the funds to the husband, arguing that they owed a general duty to all beneficiaries of the trusts and would be failing in that duty if they paid out the capital to a single beneficiary. “This argument

does not survive a careful reading of the terms of the declaration of trust in relation to the Farah Trust, which govern both that trust and the Yearling Trust.” And the clause says, “Provided always that the trustees” –

“Provided always that the trustees are hereby expressly authorised in exercising any of the powers hereby conferred in favour of any particular person to ignore entirely the interests of any other person interested or who may become interested” in other presents. So that clause was the end of that argument, and –

What happens where the trustees don’t distribute money in favour of the husband so as to enable an order to be met? What would happen in, is it Whaley, if, contrary to the expectations of the Court the Farah Trust said, “Well, we’re not going to distribute money here just to enable a Court order to be met”? Do they deal with that?

They’re not exercising a power over the trustees. They’re exercising power into the husband on the basis that he can get the money from the trust if he puts his back into it.

Don’t appear to be parties, Your Honour. That’s page 304. I don’t know the answer to Your Honour’s question, how they deal with that.

Well, no, they’re not exercising a jurisdiction over trustees. They’re exercising a jurisdiction over the husband and they’re attributing to the husband assets which he can, a sort of, a sum of money which to access he has to go to the trust.

Well, paragraph 9 is the orders, on page 306, is the orders made in the lower Court, basically orders that the husband pay the wife, so I suppose in this case there was non-trust property.

But doesn’t he, weren't they saying they couldn’t do that without, that would require

Yeah they were and I think that’s dealt with on – it’s paragraph 56 and 57.

Para 6, 10.4 million is available. Nearly seven million of this comes from the two trusts.

Well I’d suppose they'd be asked to exercise ancillary jurisdiction comparable to that contained in our section 33 if there proved to be a problem.

Yes, I’m looking at 50 – paragraphs 56 and 57 and the husband has argued that the trustees should have been joined, you can see that in 56, which is what usually happens here, because as part of join under 37 the trustees get given notice so that the Court can make orders against them and they get joined but I don’t know the answer to Your Honour Justice Young’s question.

And 182, on its face, doesn’t require the joinder or the trustees to do it either. You might recall in Ward v Ward [2009] NZSC 125, [2010] 2 NZLR 31 the trustees were not represented.

Maybe it’s just so even if there's an order against him then he will exercise proper rather than improper pressure and I just need some discussion about what that might be in terms of, on the trustees, to give him the assets to fulfil the order.

But if the trustees are sort of a company in the Cayman Islands, practically immune from the coercive power of the English Courts it’s not quite so clear to me what happens.

And if the husband is prepared to put up with bankruptcy on the basis that the real assets were on high ground in the Cayman Islands, it may be that it leads nowhere.

There's the US case, isn't there, where he had property in a trust in the Cook Islands and orders were made against it and he refused to comply and they threw him in jail until he did comply because it was an order against him personally.

And we’re not asking for it here. Now Poon I’ve already dealt with, and that leaves TMSF v Merrill Lynch Bank & Company (Cayman) Ltd [2011] UKPC 17 or Fonu, as it’s known as, which I want to go to briefly, and you'll find that in Mr Carruthers’ bundle of cases, 423, 2015, and it’s under tab 7. And this is decision relied on by their Honours in the Court of Appeal and the, as I say in my roadmap, the end result of the exercise of the powers in Fonu was the ability of the settlor to restore the trust property to himself. They were different powers, there was a power of revocation in this trust deed, but in the end the result of the exercise of the powers held by the settlor in Fonu, and in this case, are exactly the same. It’s a Privy Council decision,

2011, and basically the defendant was – the chap in charge was a ratbag. He was bankrupted in Turkey and they got judgment against him personally in respect of his businesses for US30 million and he had shuffled away US24 million into two discretionary trusts in the Cayman Islands, and the husband, the wife and the defendant, Fonu, had power of revocation of trust deeds, and this is the decision where the Court of Appeal followed in the Clayton case, and you can – it’s the same language under the head note, “There was no invariable rule that a power was

distinct from ownership, nor was there a rule that any departure from the distinction between power and property was effected solely by legislation; that, with regard to the trusts, the defendant owed no fiduciary duties and his only discretion was whether to exercise his powers in his own favour; that, in the circumstances, the power of revocation was such that in equity they were tantamount to ownership.” So they made orders against him that he had to delegate his powers of revocation to the receivers so that they could enforce the Turkish orders. It follows Masri v Consolidated Contractors International (UK) Ltd (No 2) [2008] EWCA Civ 303; [2009] QB 450, which is another English case, and basically applies Masri. Mr Demirel is the ratbag who’s the controller of the group, and paragraph 4 of the decision, for practical purposes the beneficiaries are the husband and wife. And in the lower Courts, too, at paragraph 8, the same issue was – the same result, that is, the power of revocation was sufficiently close to the notion of property to result in a remedy.

So paragraph 9, they had trusts in the Cayman Islands. They are discretionary, common ground that they are valid and duly constituted as a matter of Cayman Islands law, and there is the revocation clause in paragraph 12, “This trust may be revoked, amended, varied or altered in any manner whatsoever” by the settlor, provided it doesn’t – won’t take effect until receipt of that instrument, or if it increases the liabilities of the trustee. In substance, that’s exactly the same as what Mr Clayton can do. And the discussion about powers and properties at paragraph 31, and they go through the cases about the traditional view being that a power is distinct from property but it’s not an absolute rule and they go through how context is always important, as Mrs Clayton says, it’s the legislation and the terms of the trust, and they say for some purposes anyway the case law establishes that a power was not property but in other cases it was effectively ownership.

They quote Lord Denning at paragraph 39, which is a lovely quote where he talks about cloaks, which I’ve adopted, and the quote says, “What does this come to? It means that,” this is paragraph 39, “in order to avoid estate duty, the lawyer turns magician. He advises his client to execute a revocable settlement, and in an instant, before our very eyes, the contingent capital interest is gone. No one can see it. It is replaced by a continuous life interest. No estate duty is payable. And then, whilst we sit admiring the performance, wondering what is coming next, he can, when he pleases, bring back the capital interest. He advises his client to revoke the settlement, and with, of course, the consent of his co-trustee, and at once the capital interest is there intact. It makes me rub my eyes. I cannot believe it is true. Those near me acclaim the feat. But I do not. I have a feeling that the contingent capital

interest remained there all the time, cloaked by a revocable sub-settlement. Pulling the cover aside, you will see it as it really is, a contingent capital interest which became absolute on the father’s death and on which, therefore, estate duty is payable.”

So they quote at 47 the United States position which basically is that the assets of a revocable trust are treated, in fact, as, during the settlor’s lifetime, as the settlor’s property, precisely because the settlor necessarily, of a revocable trust, necessarily retains the functional equivalent of ownership of the trust assets. The trend in the Courts as well is to conclude that the settler of a revocable trust should be treated as the virtual owner of the trust property, especially insofar as the rights of creditors are concerned. A revocable inter vivos trust is ordinarily treated as though it were owned by the settler.” And paragraph 46, “The approach of the Courts is that the settlor retains all of the substantial incidence of ownership and that it would be excessive –

Yes, thank you, Sir. “to the form in which property is held to prevent creditors from reaching property placed in trust under such terms.” So they talk about at 56 how Masri was an incremental development, the movement from the previous case law, the jurisdiction needing to be exercised to look at new situations, and the change in the approach of the Courts, and paragraph 59 is their summary, here’s got, “The power of revocation can be regarded as having right tantamount to ownership. The interests of justice require that an order be made in order to make effective judgment of the Cayman Court recognising and enforcing the Turkish judgment.” In 62 they talk about fiduciary powers, “In the present case the power of revocation cannot be regarded in any sense as a fiduciary power and the defence do not suggest otherwise. The only discretion Mr Demirel has is whether to exercise the power in his own favour, he owes no fiduciary duties, as has been explained the powers of revocation are tantamount to ownership.” So those cases are a strong foundation for this Court to follow suit in terms of addressing the problems of trusts.

So I finally want to just finish briefly on AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58. Now AIB is a case quoted by my learned friend, Mr Carruthers QC and he refers to that as justifying a difference between business trusts or commercial trusts and other family trusts. But I’ve had a look at that case, and I

have copies here, because it’s not in any of the bundles, if Your Honours want a copy.

Yes, I would like to see that case, thank you. Oh, this is the long-awaited one.

It’s a slightly complicated fact situation, but what happens is that an owner of a house wants to – I think it’s a house – wants to re-mortgage their house, and so they borrow money from lender 2 in order to discharge lender 1 so that lender 2 can become the first mortgagee, but, and they’re told by lender 1 that X dollars is due in order to discharge, and they get X dollars into the solicitor’s trust account, the solicitors are acting, and in fact when it comes to settlement day lender 1 says, “Actually, no, it’s more than what we said, we want more money, otherwise we’re not discharging our mortgage.” So the solicitors try and sort it out, they can’t sort it out, so the solicitors for lender 2 decide to simply register a second mortgage and advance the money. Now then there’s a catastrophe. There’s a default and the building or home or whatever it is sold, is sold at mortgagee sale at a significant loss and lender 2, AIB, loses all of their advance, and they sue the solicitor, solicitors, for breach of trust in regard to the total loss. So what this Court is talking about is the position, the trust position, created by contract when the money is sitting in the solicitor’s trust account before settlement because that is when AIB said there was a breach of trust.

Well, it’s paragraph 70 I want to draw Your Honours’ attention to because this is where they talk about commercial trusts, but my key point is what they mean by commercial trust is very different from the Vaughan Road Property Trust. They don’t mean trusts which happen to have commercial business assets in them. They mean trusts which come about as a result of contractual relations. So 70, the Court says, “As to the criticisms of the passage in Target Holdings where Lord Browne-Wilkinson said that it would be wrong to lift wholesale the detailed rules developed in the context of traditional trusts and apply them to a bare trust which was but one incident of a wider commercial transaction involving agency, it is a fact that a commercial trust differs from a typical traditional trust and that it arises out of a contract rather than the transfer of property by way of gift. The contract defines the parameters of the trusts. The trusts are now commonly part of the machinery used in many commercial transactions, for example, across the spectrum of wholesale financial markets where they serve as a useful bridging role between the parties involved. Commercial trusts may differ widely in their purpose and content but they have in common that the trustee’s duties are likely to be closely defined and may be of limited duration. Lord Browne-Wilkinson did not suggest that the principles of equity differ according to the nature of the trust but rather that the scope and purpose of the trust may vary and this may have a bearing on the appropriate relief in the event of breach.”

So still the same rules apply but they’re talking about a commercial trust in terms of the trusts which get set up when a solicitor accepts money into their trust account. Quite different from this. This is a traditional trust. There’s gifting, there’s family members, there’s no contractual arrangements, there’s a deed of trust. Quite different.

So those are the submissions for Mrs Clayton in regard to 23, unless I can be of further assistance to Your Honours.

May it please Your Honours, I want to begin by putting both of these trusts into context because, in my submission, that’s the way in which they will fall to be interpreted, and I want to go to the factual findings that were made at first instance, so I’m in volume A and I’m at paragraph 73, or beginning at 72 on page 77 of volume A.

Now these were the findings that were made in relation to the Vaughan Road Property Trust, paragraph 72, “This trust was settled on 14 June 1999 by way of a declaration of trust by Mark Clayton as trustee. Effectively he is the settlor and sole trustee. The discretionary beneficiaries include Mr Clayton, as the principal family member, Mrs Clayton, as his wife, and the children are the final beneficiaries,” and that’s important in the context of my argument.

“The purpose for which this trust was set up was to separate and distance the underlying land ownership from the operating assets of the company. The Claymark Group had been undergoing financial difficulties, during the 1990s, to the extent that there was a risk of receivership. It was decided that the land would be transferred into separate ownership and would put in place leases to the various operating companies at that time. This rental income would support borrowings, from BNZ, secured over the land. With the additional funding from BNZ the business enterprise was able to continue and indeed flourish. The Vaughan Road Property Trust acted as a banker. It has largely borrowed from BNZ to advance loans to other entities. Financial statements have been prepared on an annual basis,” and I don’t need to take it any further. So that’s the context for the Vaughan Road Property Trust.

Now just for convenience I’ll deal with the Claymark Trust as well so one can see a pattern. In 68 the Judge dealt with it this way; in the middle of paragraph 68, “This trust was established to purchase two properties at Katikati, adjourning the sawmill.” And then in 71, where there's the argument about section 182, and in relation to the trust, the Judge concludes this, and I’m in the middle of the paragraph, “There is a difficulty, however, in that it is clear that this trust was set up for business purposes and particularly, according to the evidence, to enable the purchase of properties adjoining in the Katikati mill for strategic purposes, including creating a buffer to reduce difficulties with obtaining resource consents from neighbours regarding operating hours for the mill.”

So that’s the context of both the trusts and I want to go back now and just look at the nature of the property that was involved in the Vaughan Road Property Trust by reference to the findings at first instance. And I am now at paragraph 39, which is on page 67. “Mrs Clayton argues that, because at that stage there was no equity in the business, any separate property that Mr Clayton had owned, prior to that, was lost and that with the restructuring of the business that had occurred with the setting up of the Vaughan Road Property Trust in 1999 from when the business started to become profitable, that property was property acquired during the marriage and therefore falls within section 8(1)(e). I do not accept that proposition. Whilst the business may have been in a precarious financial position, the fact remains that Mr Clayton or his entities owned business assets which had their origins in his pre-relationship property. Those assets comprise land and the business operating assets. Had Mr Clayton or his entities not owned those assets, then there could not have been a restructuring of the business structure with the subsequent lending by BNZ. Mr Clayton did not dispose of assets and re-acquire them during the relationship, they remained in his ownership. It was the level of indebtedness that changed, resulting in a change in the equity. I do not accept that any increased level of equity in relation to assets that are separate property can constitute relationship property for the purposes of section 8(1)(e).”

Well, it’s the separate quality of them that – and the transfer of the separate quality of them to the Vaughan Road Property Trust.

I think she’s looking at the, at that stage immediately to 1999 prior to the transfer to

Well, she’s talking about whether they can now constitute relationship property. It

seems to be she’s talking about the business assets, not the land in the trust.

Well, although Your Honour – the sentence in the middle of that paragraph, those assets comprise land and the business operating assets.

Yes, but that’s effectively a finding that he owns the land which is clearly not the

Well, Your Honour, the way in which – the context in the way in which I have understood the paragraph is that that is looking at the position immediately prior to the Vaughan Road Property Trust.

Well, how did the properties get into the trust? Is it those properties that went into the trust, the section at Banksia Place with the two parcels in Vaughan Road?

No, it doesn’t become – there’s no question of relationship property. In relation to Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1 it arises as a species of property by way of increase in value where it’s been separate property and you are looking at a position that is deferred until separation so that you then have to look at the way in which the property arose, which is why this issue of separate property comes up if the Vaughan Road Property Trust is struck down.

All right. So he had separate property which was Banksia Place and the two parcels of land. That was the agreement about the 500,000 that was attributed as value to those except for the fact in 1999 there didn't seem to be any equity in those because he had a whole pile of debts but let’s forget that. So the Banksia section never got anywhere near the Vaughan Property Trust. The two parcels of land at Vaughan Road went into the property trust when and how? It was settled with ten bucks, wasn’t it?

Well, that’s – yes, it was settled. That's right. Your Honour, I might just have to go back to the evidence.

But there’s no doubt that those properties were transferred and that was the purpose of setting up the Vaughan Road Property Trust so I think one can take it that with some immediacy they would have been transferred but let me deal with that by reference to the evidence and I will come back to you on that. I was going to look at this question of powers and the scope of powers because there was a need because these were business trusts to deal with the property that was in them and it is the grant of powers that enable a trustee to do that but those powers, the existence of those powers do not mean that there was no fiduciary duty on the trustee that sat alongside those powers, and the reason for the powers I suppose is illustrated by, for example, the common law rule about – or the equitable rule about no conflict of interest and in order to deal with any question of conflict of interest there had to be a power in the trust deed.

What’s of significance here is that for all the criticism about the width of the powers and what be done and what might not be done, there has been no exercise of the powers that have been criticised in over 20 years of operation of the trust and there’s a very easy explanation for that. It was a business trust and the powers were designed to deal with the scope of business that was necessary. Let me just look at–

I don’t – in the passage that my learned friend just referred to there is no particular magic to it. There’s no suggestion that it has other legal rules associated with it. It is simply that the nature of its existence is that it is in existence to conduct the business or to finance the business that was being conducted by the Claymark Group and that’s the only significance of it.

But why do you need powers to resettle a trust or take out beneficiaries or appoint it all to yourself for business purposes? What possible reason – I mean, you might need powers to borrow and do various things like that for business purposes but I can’t see what the powers that we’re worried about –

Well, power to deal with himself so that he can deal with the money to acquire other assets or to divert that money.

But the trust could acquire those other assets. He doesn’t need to deal with himself like that. The trust – like a company can acquire other assets. It doesn’t need to deal with the shareholder. Why does the trust need to deal with him?

Well, he needs those powers as the trustee to deal with this. I’m talking about his

Well, no, I don’t understand that. He has all the powers as a trustee to do whatever he wants with the business the trust exercises, doesn’t he? He doesn’t have to deal with himself for that.

As the trustee, he needs those powers to be able to use the trust assets for the business purposes of the group.

No, he doesn’t. He just needs the power to operate the – to lease the properties to the business. He doesn’t need to be able to appoint all the assets to himself. Why is there a business purpose for that? There’s lots of trusts that carry on business that don’t have those sort of powers.

Well, let me just examine the powers, then, as to whether they are typical or atypical and my learned friend relies on clauses 11, 12 and 14 and I’m now in volume E at page 1339 which is clause 11. Clause 11 was the first clause identified and my submission is that that is a perfectly normal clause because it entitles the trustee to look at classes of beneficiary, for example, there may be children, grandchildren, nieces and nephews in the discretionary beneficiaries and it is a conventional power to allow the trustee to exercise discretion.

I have to say, I’ve never seen anything that’s as extreme as this in a trust deed because as a discretionary trust the only right that the beneficiaries have is a right to be considered. You certainly don’t need a clause like this that effectively takes away any right to be even considered by the trust deed to operate a normal discretionary trust, do you? I mean, this is an extreme clause that I haven’t seen before.

Well, all it does is allow the trustee to distinguish between groups of beneficiaries or between beneficiaries.

It’s its role in conjunction with clauses 7 and 19 that I suppose attract some surprise.

Well, let me deal with them separately because obviously I’m coming to 7 and with His Honour, Justice Arnold, mentioning 19 I’ll deal with that as well. 12, my submission is to the same effect that that is not an unusual power and there are trusts with wide-ranging powers that are similar to these, as I’ll come to in a moment, and 14, the issue of self benefit, the fact that there is an ability to self benefit does not detract from the concept of trust, as I shall illustrate by reference to some of the cases.

I’ll go now to 19 and deal with the issue which His Honour, Justice Arnold, raised. Your Honour raised it in relation to 19(1)(c), but it’s important to read that in context because it relates directly to 19(1)(b) so that if there is a trust – if a trustee is a trust of one trust and it is dealing with another trust of which he or she is also a trustee then that is the negation of conflict clause, and just reading (b), that trustee may be a trustee of any other trust to or from which the trustees propose to sell or purchase shares, securities or other rights or property or with which the trustees otherwise deal as trustees of the trust or the interests or duty of that trustee which refers back to the trustee in (b) –

No, it doesn’t, because all of these clauses start with that trustee. A trustee may act as such and exercise all of that trustee’s powers notwithstanding that that trustee, that trustee, that trustee.

Well, I confess I hadn’t read it that way but the – it doesn’t detract from my argument because if the concept is that that removes the trustee’s fiduciary duty then, with respect, I disagree with that because – and this comes really around to the argument in 7.1, that there is no power in the trustee to remove the final beneficiaries, and the existence or the absence of that power, so the existence of the final beneficiaries, mean that there is always a duty to account so there has to be a fidelity to that mandate to account. That’s the loyalty that is required. So just to meet Your Honour, Justice Young’s, comment, it’s not unconstrained at all because –

Well, it’s only constrained in the fact that there might be nothing to appoint because you can resettle on one of the beneficiaries, which could include yourself, and you can do so without taking account of any conflict of interest whatsoever. You could appoint all of the capital or income to one or other of the beneficiaries, so you might have a duty to account but it was a duty to account that attached nothing.

And, Your Honour, in the context of the way in which the trust was operated and the purpose of the trust and where the probabilities lie, there is no suggestion and there has never been any suggest and there can be no suggestion that those powers would be exercised, that wasn’t the purpose of the trust at all.

Well, the only – well, I expect it’s a drafting matter that goes back to the way in which they were prepared.

Does it matter if they haven't been exercised, well, isn’t the point that the powers are there, that it means he isn’t constrained by the normal constraints that would be applied to a trustee?

Well, but Your Honour that begs the question, my submission is that he is constrained, because the power to, the fiduciary duty to account must remain because –

Well, no, but he can appoint the whole of the trust fund to himself, even is that conflicts with his duty, that's what it says.

Well, because a Court in equity simply wouldn't countenance that conduct that would be –

What would be the peg that you would hang it on? They couldn't complain about the appointment of himself as sole discretionary beneficiary.

Then he says, “Okay, and now I’m going to appoint everything to myself” –

– and you say, “Well, that's a conflict of interest,” and he says, “Well, so what, look at clause 19.”

No, no, the final beneficiaries would still be able to call to account as to whether that was a proper exercise of the power, and if the –

But why wouldn't it be, given the terms of the trust deed? And actually even probably if you take out the terms of the trust deed. Because that was the point in those cases we were taken by Ms Chambers, wasn’t it, that if the trustees did as the settlor wished, being independent trustees, as long as they considered the issues of the other beneficiaries and whether they should distribute there would be nothing wrong with them distributing the trust fund to the settlor. And here they don’t even have to consider the other interests, and he can do it himself without going through an independent trustee, according to the terms of the trust deed.

Well, the mandate, the mandate, the fundamental mandate under the trust is to benefit the final beneficiaries, they cannot be removed. So my submission is that properly interpreted he had an obligation to account to the final beneficiaries and that to do otherwise so is to defeat that part of the mandate would be a breach of trust which the final beneficiaries could enforce.

Can’t he re-settle, can’t there be a resettlement under the terms of the trust deed?

On any of the beneficiaries at all, including himself, or any beneficiary he adds, the Cancer Foundation – actually I don’t think there is such a thing there is such a thing as the Cancer Foundation.

Well, my submission is there is certainly power to add discretionary beneficiaries or to benefit discretionary beneficiaries in different ways, but –

That is, at least, a trustee power whereas the appointment of discretionary beneficiaries is done by the principal family or it’s the same person but in a different capacity.

Although 9.4 it can be exercised on any terms and conditions as the trustee may decide.

My submission remains that the fundamental mandate is to the final beneficiaries and if powers of this kind were sought to be exercised, which defeat that mandate, then that is a breach of the trustee’s fiduciary duty and on which would be enforced.

It would have to be that the step that was taken was such that it defeated the final beneficiaries’ entitlement –

I mean final beneficiaries often get beaten by appointments being made to discretionary beneficiaries earlier in time.

And 10.1A even on vesting day they can appoint by deed to any of the beneficiaries to the exclusion of the final beneficiaries, 10.1A.

Well you can, you could appoint to himself or to his – if he’s added as a beneficiary somebody, he can appoint even on vesting day that person to the exclusion of the final beneficiaries, as long as they are a discretionary beneficiary.

Well I mean that, I’m going to just repeat the submission, that to exercise the power in that way.

Well I can’t see that it is because it’s a specific thing that says, distribution on the vesting day, you can by deed appoint any of the discretionary beneficiaries to be the beneficiary that takes the trust fund on vesting day. How can it defeat the final beneficiaries when it’s an explicit power to do so? I can understand the argument of appoint it before –no I can’t understand the argument because I think you can anyway, but here you’ve got an explicit power on vesting day to give it to any of the beneficiaries you want to the exclusion of the final beneficiaries.

I mean don’t, with respect Your Honour, why does that eliminate the final beneficiaries because the argument –

Well Your Honour it does become a question as to whether the Court would see that as a proper exercise of the trustees’ mandate when the fundamental obligation is to account to the final beneficiaries.

Well I just don’t see that if you look at 10.1A. The final beneficiaries are if you haven’t appointed one of the discretionary beneficiaries so they’re effectively a contingent on that power of appointment not being made by the trustees.

Well they can ask for an account as to the basis, as to the justification for the appointment on vesting day of the way in which the trustee exercises that power.

Well the case law would say you're not allowed that, so unless the trustees have said, “We are being,” in writing, “We are being totally capricious and we have decided we won’t consider anyone else and we will appoint a, because the moon told us to

when we were dancing in it,” unless they’ve written that down the Courts have been

Yes, I accept that, and the – yes I suppose – Kain v Hutton is in a different category, but there –

They were fixed beneficiaries mostly, or the trusts have already vested, in some of the cases.

Yes, no, I understand the point. Well, I mean, the final beneficiaries here are, in that sense, fixed beneficiaries as well.

Mr Carruthers, I have a feeling that there's a case where, I think, Judge Osborne reviewed authorities as to what, I think, was said to be a capricious removal of beneficiaries in a family dispute and – does this ring a bell with you at all? And I think

And I think it was held that that wasn’t subject to – that wasn’t a fiduciary power, that was a, you know, basically I removed them because I hate them because they’ve been such bad children, or something along those lines. That may review some of the authorities that are on, at least touch on the subject of your debate with Justice Glazebrook.

I think if there was a totally capricious, proved capricious use of power, as a trustee, it could probably and would be reviewed.

But as I say, it is normally when you have done something like write down, “I’m not even considering these other beneficiaries,” otherwise there’s been a real reluctance to do so. But, of course, the powers that are personal are going to be in a different category from powers qua trustee.

I think that’s what the case, a case I was talking about, I think, was treated as a

Yes. I think that the submission was that the trustee had fiduciary obligations, they were not excluded by the deed and, although we are in difference on what might be done, my submission is that the mandate is to the final beneficiaries and if the powers were exercised to defeat that mandate, that would be an act that the final beneficiaries could ask the trustee to – could enforce an account against a trustee, so that has to be the submission.

Now, I think the only other point is 7.1, that I need to deal with specifically, and my submission, and my written submissions are that that power just does not have the qualities that the Court of Appeal said that it had. It could not achieve what the Court of Appeal said it would achieve, with respect to my learned friend’s submissions, at paragraph 120, she does not seem to take issue with that but relies on other grounds in the deed.

Sorry, remind me again, what is the submission you make on the Court of Appeal’s

I’m in my written submissions Your Honour and I dealt with that extensively in the summary of argument at paragraph 5 through 9 in summary, and then I have explained that in dealing with the Court of Appeal decision at paragraphs 26 through to 31.

The summary, sorry, Your Honour, they’re my initial submissions dated 30 July 2015 and the summary is at paragraphs 5 to 9 and then the argument is set out at paragraphs 26 through to 31.

I understand. If I can take you to paragraph 120 of the submissions then at – and they’re the submissions dated 18 August where the submission’s made the Court of Appeal has interpreted clause 7.1 as enabling the removal of the financial beneficiaries, given that they are included in the definition of discretionary beneficiaries. Even if that interpretation is incorrect, there can be no doubt that Mr Clayton could legitimately remove any entitlement to his daughters as final beneficiaries, and then the –

I had already noted though that “discretionary beneficiaries” includes the final

I think they’re probably in a different capacity as final beneficiaries. I’m not sure that the removal as a beneficiary would remove them as a final beneficiary so that they’re specifically defined as final beneficiaries, that’s the point.

So yes, you could remove them as a discretionary beneficiary but you couldn’t as

Okay, but the other argument is that even if that’s so, you can in effect do that by removing them as discretionary beneficiaries and appointing everything to whoever substitutes for them. That’s the –

Well, you don’t even need to remove them. You can just appoint to one of the others and leave them there.

Yes. But yes, I mean, all – I understand what is being put to me but the – but I put the argument on the basis of the inability to remove the mandate completely.

And also we can understand as a practical matter, he is, one assumes, very unlikely to remove his daughters as beneficiaries, in any event.

Well, he’s very unlikely to take all of the steps that we’ve been discussing because of the nature of the trust. It’s over – if we’re looking at the probabilities, which is the

expression, I think, Your Honour, Justice Young, used at one stage of the discussion

Mr Carruthers, I’m getting a little concerned about the time. It’s not any criticism of you because you’ve been put upon, but I wondered whether it would be acceptable to counsel if we sat on till five today and took a short break now. Is that going to cause any inconvenience?

Well, can I ask this, Your Honours, in the way in which we have put the written argument –

– and in the way in which the argument has developed when my learned friend was arguing, are there particular aspects of the argument that you want me to deal with orally because once I deal with this trust argument and I may well have done as much as I can, I’ve simply got the property argument and the relationship property argument to deal with and I’ve dealt with those quite extensively already. I mean, the short point that we would be arguing is that property in the Act should be interpreted in a manner that does not involve the trust rights or interests and that’s consistent with the legislative basis that led to the provisions in the Act dealing with trusts.

Well, for myself I would like you to develop that argument on the scheme of those provisions, particularly 44 and following, and there may be other things but how long do you think you would like to – we will be in difficulty if it’s necessary to sit into a third day. That’s the problem that we have.

I’ve still got 20 minutes and, Your Honour, I’m going to be going straight to my written submissions to deal with property and relationship property and the reason for interpretation and it’s probably a matter that I can put almost as shortly as I have but I’ll take you through the material that I’ve got.

So you’d prefer not to sit on until five and you’re confident that we will complete tomorrow? That’s really the question.

We’re happy to sit until 5.00 and I must say I would prefer to do that because then we’re going to have a little bit longer if we stop, perhaps, talking about it. Is that all right, Mr Carruthers?

No, Your Honour. I’ll deal with a few matters quite shortly. Just in relation to that question of powers, can I just draw attention to the article in our bundle 1 at tab 11? It’s simply an analysis of powers and I wanted to refer to the Court of Appeal judgment at paragraph 87 where the Court of Appeal is dealing with powers and just points the power under 7.1 or looking at the powers from paragraph 86 and saying powers of this nature are not unique and refers to a similar power being considered in Nation v Nation [2004] NZCA 288; [2005] 3 NZLR 46 (CA). Now, Your Honours, what I’d like to deal with quite quickly are some issues I have made a note on, and I wanted to deal first when the issue of sham and just draw attention to the fact that three Courts before this Court have held that Mr Clayton genuinely intended to create a discretionary trust and the business purpose in that regard is plain and was accepted by the Courts below.

Your Honours, I just mention this, that there is very much an issue as to what the appellate practice is going to be of this Court in circumstances where there is what is really a factual review of concurrent findings of the Court below. Conventionally the practice would be that having had three Courts find on the issue of sham that would be something that a superior Court would regard as sufficient.

Not so much a question of reviewing the findings of fact because it’s pretty clear that this was intended to be a real trust that would buy land and would borrow money and would pursue certain business purposes, in particular keeping the land away from the business. But what it all means in the context when there’s this overlay of an ability to sort of unravel it, accepting for the moment, and I know you don’t, that that’s what the effect of these clauses in the trust deed amount to.

Yes. Well, my submission is that it certainly cannot be categorised as a sham on the basis of all of the authorities that are referred to by the Court of Appeal and are conventional in this area. I’d answer my learned friend’s submission about Raftland in the High Court of Australia. That is a purely conventional decision and I’ll just refer you to the passage in my learned friend’s volume, appeal 23 volume, page 108, at paragraph 58 where the majority concludes there was an inconsistency between the fiscal and financial objectives of the transaction although they overlapped and then there’s a description of it, and then it said, “It’s little wonder that Mr Tobin found it difficult to distinguish between the legal entitlement and the commercial risk that the entitlement would be invoked. The primary Judge was fully justified in finding that the entitlement under the Raftland trust deed was not intended by the settler or the trustee or the tertiary beneficiary to have substantive as opposed to apparent legal effect.” That, in my submission, is a purely conventional approach consistent with authorities in New Zealand and the United Kingdom and there are, as Your Honour Justice Glazebrook observed, some difficulties with the analysis that Justice Kirby makes, not only in his judgment but also in the treatise in the book Sham Transactions. So the next submission I want to deal with quite quickly is illusory trust and I’ve submitted and as I understood Your Honour the Chief Justice the label isn’t particularly helpful. It’s not a category that needs to be decided. The Court of Appeal, in my submission, was right that it either is a trust or it isn’t a trust and there is in fact as a merit of law no category of that kind. The real question here is probably whether there was a trust and I have submitted consistently with the way in which the Court of Appeal has analysed the factual position, that there was a trust. The three certainties from Knight v Knight [1840] EngR 862; (1840) 3 BEAV 148, 49 ER 58 are established. I have made the submission that there was a fiduciary duty on the trustee, and we’ve had exchanges about that, and the article by Barkley, which is my learned friend’s authorities, and that’s at, it’s in her volume for the 23 appeal and it begins at page 358, and I just want to draw attention to this passage.

On 359, on the left-hand column at the last paragraph where the learned author says, “Of course, the core fiduciary obligation of selflessness is not absolute; it may be limited in scope. One example of this is, as the Court of Appeal said, that a trustee can be a beneficiary and can benefit from the trust. However, this principle has up to now been limited to cases of fixed beneficiaries.” Well, with respect, that’s not, and he has cited Purcell v Deputy Commission of Taxation [1920] ArgusLawRp 78; (1920) 28 CLR 77 and Cooper v Federal Commissioner of Land Tax [1941] HCA 34; (1941) 65 CLR 320.

So the principle has been limited to fixed beneficiaries. Well, in fact, neither Purcell nor Cooper stand for that and can I commend the reading of Purcell to you because there are extraordinarily extensive powers in that case to the point that one of the powers enables the settlor of the trust to manage his farm business as if it, continue to manage the farm business as if it was his own, and the Court looking at whether the declaration of trust, which was a third to his wife, a third to a daughter and a third to him, whether that was effective, having regard to the extent of the powers and it was so held.

Your Honours, there’s only one other passage that I want to refer you to. It’s on 359 on the right-hand column, again the second to last paragraph, “Without the fiduciary obligation of selflessness there can be no trust as traditionally understood. A deed that purports to be a trust but excludes the fiduciary obligation cannot be effective in creating a trust. It is irrelevant whether the deed itself is valid and properly executed.

It simply does not create something that is within the category of a trust.” Well, one has to be careful about the fiduciary obligation of selflessness because the real enquiry is compliance with the mandate, that is fidelity to the mandate, loyalty to the mandate, and is that concept that triggers the fiduciary duty.

Well it has been said that one of the core obligation of a fiduciary is not to have a conflict of interest so if you have a trustee that says you can have a conflict of interest, you don’t have to take account of it, the question would be can that therefore, can therefore that be, in fact, somebody with fiduciary obligations, isn’t this the point that’s being made here?

Well 19C would say he doesn’t, an exercise, even the trust, even qua-trustee, let alone qua-power, exercise, that he doesn’t, that he can exercise it in circumstances of a conflict of interest.

But, I mean, the purpose of that power is because of the equitable obligation not to have a conflict of interest so the deed requires a power to deal with that.

But the argument is that as that is the core of having a fiduciary obligation, if you don’t have it then you don’t have a fiduciary obligation because you’ve excluded it and therefore don’t have a trust.

But that is really to confuse the power with the fiduciary obligation and my submission is that the fiduciary obligation exists because of the mandate in relation to the financial beneficiaries. And that concept of selflessness also in that article derives from what’s said to be a requirement for the trust property to go from the trustee to another person. That’s actually not what Lord Langdale is saying in – and I’ve recorded this in my written submissions – that in Knight v Knight the language that’s used is of recommendation, entreaty or wishes, so they’re words of discretion

and they’re conferred on a trustee by the donor or settlor, but a settlor, of course, may command but that is not necessary for the purposes of the trust.

– you would accept that a trust, in quotes, might not be sham but it might be ineffective to be a trust because, for example, it did remove, and I know you say this one doesn’t –

If you eliminate any one of the three certainties, I mean, you don’t get to the point

– having a trust so, as the Court of Appeal said, you’ve either got a trust or you haven’t.

That’s not necessarily the same thing as whether it’s a sham or not because the

– the party, and they may intend to set it up but may fail to do so effectively, and you would accept that, I think.

Yes, yes. And the other part of sham, really the second leg that the cases recognise, is in the performance of the document. You perform it in a way that is, is not consistent with the intention with the document itself, but that’s a different concept of sham.

Now, Your Honour, can I come to that, to where the argument goes to next in the Court of Appeal, and that’s on the issue of whether the power under 7.1 was property, and, Your Honours, the same argument will apply to the other interests that arise under the deed, because they will all turn on whether they are property or not. So where my analysis begins, and I’ll simply take you through this because I’ve recorded it quite fully, is in my submissions of 30 July, beginning at paragraph 38. Now I’ve submitted that the, that interpreting the particular power that my argument deals with as property has the effect of exposing the assets of a validly formed trust to relationship property claims. And my submission is that this is inconsistent with the legislative intention and when Parliament appointed the Act, in 2001, the Amendment Act, decided against giving the Courts the power to make orders against trust capital so as to give effect to relationship property entitlements. Trusts were created for legitimate reasons and should be permitted to fulfil their purpose, and that’s part of the Select Committee report, as I’ve noted.

Parliament made this decision knowing that trusts were at odds with the social aims

of the Property Relationship Act, and again I’ve referred to the report of the working

party. The legislative intent can be seen to be supportive of business, including business trading trusts, that are an established feature in industry and commerce. And the submission is that the Court of Appeal was in error in failing to take account of the legislative intention in interpreting any other right or interest instead of recognising the legislative intent the Court of Appeal wrongly, in my submission, sought to put focus and weight on what it viewed as the aims of the PRA.

That legislative history you refer to, did it draw any distinction between discretionary trusts and trusts where the beneficiaries interests were vested?

Your Honour, my answer to that is, I think, no, but I would like to check that because

Well, no, I’ve referred the materials but we, we have access to them if the Court wants them, we can certainly provide them.

Although it would be useful to understand the submission you make in its proper context, it might have been helpful to have.

Also, I just wanted to know what the order made, because if the order was the power of appointment with property, how does that affect the assets of the trust? I mean, apart from Mr Clayton putting pressure on the trust or on himself to exercise the power of appointment and give him the means of providing half of those assets to his wife.

– what the order actually was made and it seems to have been it was relationship property.

It just means he has to pay a bigger amount out of his personal resources, I don’t

Well it might be mightn’t it? Does he have enough resources outside the trust?

Well, but it doesn’t directly – there is no order directly against the trust is the point I was putting because you say it’s got the effect of exposing the assets of a validly formed trust to relationship property claims. Now it might be that there should be an order against the trust and that your complaint would be right and we might decide that is the case, but at the moment the order made by the Court of Appeal doesn’t do that, as I understand it.

No Your Honour’s right, I think that you would have to regard my submission as

Why is the trust appealing? Why is it not a matter of indifference to the trust?

I suspect it’s the way in which this argument arose bearing in mind the trust, the trust appealed from the Court of Appeal – from the High Court finding that it was illusory and in the course of the argument in the Court of Appeal I have to answer this and Your Honour I’m bound to say that I probably hadn’t given careful enough thought to the point that Your Honour Justice Glazebrook has raised and now Your Honour Justice Young but it was I think really as a result of the way in which the Court of Appeal dealt with it and then it was seen as being a matter for the trust to argue particularly because of that issue that we discussed at the opening, the start today about Mr Clayton’s role overall in the appeal but Your Honour must be right that on its face the conclusion that the Court of Appeal has reached doesn’t, in its terms, affect the trust.

Your Honour, my apologies. In our bundle of authorities under appeal 23, under tab 8 there is an extract from the select committee report that –

That tab relates to the select committee report that I’ve noted in footnote 29 that I took you to a moment ago and the second page of the report under the heading, “Family trusts and companies – effect of clause 47,” and deals with the background to the legislation, the history of it, and you’ll see that it refers in terms to discretionary trusts.

Well it certainly makes it clear that they realise they’re dealing with discretionary

Now, what I’ve submitted, then, at paragraph 39 is that the – what our orthodox concepts of property found in the definition at A to D –

So when – because this Act has been amended so many times, when was the definition of relationship property – it’s been amended 2002. This Bill is an earlier amendment, isn’t it?

Yes. Your Honour, the property definition is the original definition. Then the select committee report is dealing with the trust issue.

So I’ve said that those concepts of property together with the treatment of trust property in section 4B and 44C show that in my submission that the legislature did not intend that powers of appointment would be property such that assets or the value of a trust would be available for sharing under the Act. I’ve submitted that materials associated with the drafting of the Act support the proposition, and I’ve noted those in the footnote 32.

The comment in the select committee report is pretty unsophisticated, isn’t it?

Then I’ve noted that the extended definition of property in the Act which has its genesis in the old Matrimonial Property Act 1963 and over 40 years hasn’t been interpreted in the way in which the Court of Appeal has interpreted it.

I was looking at the Australian case and it’s rather suggesting to me that it might have although there’s obviously been a deviation between the New Zealand and the Australian legislature.

Yes, there certainly has been. Again, Your Honour, I can look at that issue overnight and see if I can track it through the Matrimonial Property Act.

You haven’t found cases that have explicitly said that it doesn’t include those powers,

Then I’ve referred to the establishment of the trust reference group and the fact that that group is building on the Law Commission’s report, then I’ve submitted that the proper place for any changes to the law in this area is within the Parliamentary process that would enable review of policy decisions made by Parliament in 2001 not to give the Courts the power to make orders against trust capital to give effect to relationship property entitlements, to allow proper debate of the issues and understanding of all parties potentially impacted by the changes and then I’ve drawn attention to the fact that the Court of Appeal judgment as it stands fails to take into account the interest of creditors, for example, in this case BNZ who will be prejudiced by the finding.

Well, I think it’s prefaced as I explained a moment ago on the basis that the way in which the Court of Appeal’s order had been interpreted is that it would have an impact on the trust. Now, I think I’ve conceded that I can see that by its terms the order needn’t necessarily have that effect that it simply deals with the power itself within any impact on the trust but if the Court was to exercise a power or reach a conclusion that it did, that that did affect the trust, then there are other interests that need to be taken into account that would be adversely affected and prejudiced by the finding.

How can it – because if creditors are there then it will only be the net assets of the trust that could possibly be subject to any order and if the BNZ has a security then the security would be over the assets of the whole of the assets of the trust and I doubt that any order, even if you were looking at a very determined Court, would actually take away the security that’s there or be able to do so.

I’ve just checked. The Married Women’s Property Act 1882 which I think was the

Well, I think the second point that I’ve made there about the judgment having unintended consequences for other valid trusts in New Zealand, including discretionary trusts, and that’s why we submit that any law change should be left to Parliament, which has the ability to modify laws from a specific date, and affected parties may then expect to be given time to arrange their affairs.

1963 the Matrimonial Property Act, the property includes real and personal property, any state or interest in any property, real or personal, and any debt and anything in action and any other right or interest, so that’s 1963.

I mean, the – really all of these arguments depend on an assumption that the relevant spouse couldn't pay the amount the Court ordered it to pay without effectively applying property from the trust to the payment.

Yes, they do, Your Honour, and it was, I think it was on the basis that the order was interpreted as being against the trust but if, as the Court is indicating, it isn’t an order against the trust then there would be an issue as to how the payment was to be made and that would probably involve some arrangement with the trusts in order for payment to be made, but I think it is fair for you to take the argument in the way in which you put the question to me.

What do you say to Ms Chambers’ submission that the Courts overseas and all other jurisdictions have in fact interpreted their legislation which he says is similar to ours, even if the wording is different, in a way that – not specifically on the power of appointment issue but just on the issue of control and unfettered discretion or whatever the, however it’s put?

Yes. I think there is an important distinction that my learned friend did, in fairness, mention in the course of her submissions, and that is that that is our statutory regime

which includes that separate property regime, recognition of – statutory recognition of separate property, and what I would say in answer to the use of the overseas cases is that the context is important, as the TMSF case, the Fonu case, said, and I come to this right at paragraph 45, “As with all legal categories, context was all important. There is no doubt that while for some purposes a power was not property, for other purposes the holder of a general power could be regarded as being for all practical purposes an owner,” and I’ve done an analysis of TMSF that I won’t take you through but what I would say directly in answer to Your Honour is that what is said in those cases needs to be measured against our regime of separate property, and I can illustrate that from Kennon v Spry.

Although this was held, as least in the increment, not to be separate property, wasn’t it, so why does separate property make a difference? Or maybe you’ll explain it when you come to the Spry decision, will you, or...

The reason, I think, my submission is that the statutory regime is important in looking at whether the overseas cases can have application because of the different contexts in which the decisions are made. So here Your Honour’s right, it is the Rose v Rose principle, the increase in value, but if the suggestion is that, as my friend says, well, it’s the whole of the resources of the marriage that can be taken into account on the basis of the overseas cases, then that’s not right because that’s where the issue of separate property arises or the statutory context arises.

Say we had a case where there was absolutely no separate property, these people got married and they had to borrow the licence fee from somebody, had the clothes they stood up in, and everything was acquired since the marriage, why does the separate property regime make the overseas cases not applicable to that – and there’s a trust set up? Why does the separate property regime not make the overseas cases applicable to my absolutely nothing arose outside of the marriage, they had no separate property whatsoever?

All right, so you’re relying on the specific provisions that have been brought in and saying that’s a code, basically?

And a legislative decision that that was the extent to which trusts would be brought in?

Mr Carruthers, would your argument be the same if the only discretionary beneficiaries were the husband and wife?

But I would counter immediately that it doesn’t detract from the argument, the example Your Honour’s giving me doesn’t detract from the argument at all. I’m sorry, I thought there was a passage there that I wanted to draw attention to.

From paragraph 45 onwards I’ve dealt with the distinction between TMSF and the present case and then I’ve gone on to consider the question of relationship property, why if clause 7.1 was property, why was it relationship property, and there's no

explanation of that by the Court of Appeal. And at paragraph 48 I’ve submitted that the classification of the power as relationship property cannot be made by reference to the assets in the trust because they were not relationship property.

The Court of Appeal expressly recognised this in its findings of the disposition from VRPT to Claymark Trust were not dispositions in relation to property, and I’ve given the passage from –

Now why is that? Just because they were in a trust or because they were initially from separate property, being the two Vaughan Street properties, or because – sorry, it’s a question. And it might be all of the above and something else.

I think, I think it is, I think it is all of above that – there's just nothing about the quality of the assets in the Trust that makes them relationship property.

So I think my follow-up question is, if they were relationship property before they went into the trust do they cease being relationship property once they go into the trust? So is it significant –

– subject to the trust because, because the, of the right of the parties to deal with property in the course of the marriage, that’s – so the issue becomes what’s the position at the conclusion of the – at separation.

So you’d say at separation they're not relationship property because they're trust

Even if earlier they were relationship, well, even if earlier if they had split up they would have been relationship property?

With categorisation of assets in the course of a marriage, because of the ability to deal with them in the marriage.

But if the power, in context, is itself a property, is itself property for the purposes of the Act, and its value has been affected by the application of relationship property or the efforts of Mrs Clayton, why is that not relationship property?

And the value of the power reflects applications in relationship property, for instance, advances that were made by Mr Clayton, or indirect contributions from Mrs Clayton, why isn't that enough to make the property/power relationship property?

Well it does beg a question about Mr Clayton’s advances as to whether they were

No, no I think – I’m going to leave Ms McCartney to deal with that because I think that the way in which that submission was put, as I recall it, was as the foundation, inviting the Judge to vary the agreement. It was really put, as I understand it, as I understood it, as a basis for –

They’re saying that the agreement was fair because this amount of property remains

Because he had, well, he had 500,000, which were those three properties. Two of them went into the trust, so that left one, even assuming that the two went into the trust were worthless, the only money he had for a separate property, if you look at the Banksia property, which I gather has been sold anyway, was 500,000, so how did he lend two million to the – if it wasn’t from relationship property?

Well, to be, that was – well, that was money that was borrowed from the banks, that was the way in which the money went from the banks to the trust –

So he borrowed the money personally and then lent it to the trust, is that what you're saying?

It’d turn on the rather-awkward-to-apply provisions as to what debts are relationship debts, I guess.

Well, I don’t even know that it’s evidence that’s what he did do, myself, because you haven't taken us to anything to do with –

– where that debt came from, how his debt came or, so I don’t even know, did he ever say where his advances came from to make to the trust?

Yes, Your Honour, I really, I know that that’s an issue that Ms McCartney wants to deal with –

Well, I think that's, that's, other than that I do know my way round the evidence, but

Now I then submitted at 50 that, “Nor can the power of appointment be relationship property on the basis it was acquired during the marriage. That approach would treat the power as property, even where the trust was settled with separate property it would give the, an applicant, greater rights than he or she would have under the Act. A stranger holding a power of appointment may find the power included in their own relationship property proceedings.” I’ve submitted that there was no evidence that relationship property was applied to the assets of the trust, and that's a question that will need to be investigated further, or the intangible power of appointment, and so there’s no evidence that Mrs Clayton contributed in any way.

Well, Your Honours, those are the submissions that I wish to make on 23/15 and, as I explained this morning, the only other part that I see myself having in the appeal is in response to my learned friend, Ms Chambers, in relation to section 182. I’ve filed the submissions in relation to 44C because it was thought the trust was the only party to deal with the Claymark Trust. My learned friend Ms McCartney has filed submissions and will deal with that argument, so I will be quite a short time on my section 182 submissions in response to my learned friend tomorrow.

I thought that you were going to argue the scheme of the Act as well and the section

44 and following paths as pulling against the suggestion as to property. Now you’ve developed the argument in terms of the statutory history on that point, but what’s your textual argument, did you want to develop that further?

– the two discrete provisions that restrict the ability of the Court to deal with trust assets.

Well, I just query whether they are as clear as that and wondered whether you would go to them. Sorry, I’m just trying to find 4B. I don’t think it’s 4B I’m so bothered about. I think it’s – I mean, what do you take from 4B? It’s...

Well, all I take from that is that the legislature recognised that there was really a discrete and separate issue where trusts were involved. That’s as much as I take out that.

– is that is really the precursor to the way in which the legislature said that trust interest should be dealt with, and that takes us through to 44 and –

– which is the – and that, 44’s any disposition, 44C is disposition of relationship property, and that’s the compensation provision, but it restricts – the point that I made in the written submissions is that it restricts the power of the Court to, or it doesn’t give the Court power to deal with the caucus of the trust. It gives the Court power to deal with income. So all I’ve submitted is that the legislature has chosen –

No, it’s just chosen to give the Court particular powers in relation to trusts which

But the terms of section 44C rather beg the question that we’re being asked to look

And, of course, 44C has to apply to all sorts of trusts where indeed the interests of the beneficiaries may have vested but certainly which don’t have the rather unusual features that this trust has. So I’m just querying whether this scheme is sufficient answer. I guess you would say, “No,” but you’ve developed the other arguments in

relation to why this, the trust assets here should not be regarded as relationship property.

Yes, yes, and, I mean, these provisions are relied on in relation to the Vaughan Road Property Trust only to look at what the legislative intention is in interpreting the word “property” in relation to clause 7.1, so that’s the context of the submission. There’s quite a different context for the Claymark Trust because there’s a submission –

But is there really anything here that is offending these principles, because the sham

– that becomes – so the whole reluctance of Parliament and the Courts to make orders against trusts goes away because there isn’t a trust to make an order against. The property just essentially reverts back to the settlor and the power being property just simply means that the relationship property pool, from which an order of sharing

50/50 can be made, is a bigger pool, but it doesn’t do anything to interfere with the operation of the trust. So I’m not sure that Parliament’s reluctance to have the Courts making orders about the corpus of a trust really bite here because nobody’s asking us to do that.

Well there are two parts Your Honour. I don’t rely on the legislative framework for the sham argument at all, that’s quite a separate discrete argument. I do rely on it but

we actually come back to the point that we had an exchange on a little while ago about the role of the trust in relation to 7.1 and I’ve had, the carriage of that argument from the Court of Appeal on the basis that it did affect the trust. But Your Honour may well be right that 7.1 is not a matter that does affect the trust.

Thank you Mr Carruthers. Ms McCartney, was there anything you wanted to add in relation to the appeal in 23/2015?

There are a couple of things I would like to add. I’d like to, if possible, and I know that the Court wants to move on to the next appeal tomorrow, but I would like if possible to have the opportunity just to collect my thoughts in relation to the various points because it’s sort of arisen in a –

Well that’s fine except I had understood that for this appeal, as appellant, you were adopting a submissions to be made by Mr Carruthers, and that if anything arose you would have another go, which is a little bit unusual anyway. So I’m not sure that we had expected to hear from you at any length on this Ms McCartney.

Your Honour, you won’t hear from me at any length on it, but I am in a little bit of a difficulty because I actually don’t even have the authorities that have been referred to because of the position taken by Mrs Clayton, that I wasn’t involved –

And I haven’t had them so I was expecting them so it has been difficult for me to follow the argument but in relation to the issues that I will address on behalf of

Mr Clayton, I would first of all say this, and this is important, and I’ll develop it tomorrow, the 44C argument, the reason why, as I understand it, the trustees have carried the argument, is because there is no other property available to Mr Clayton. So if Mr Clayton has an order made against him in relation to the power of appointment, or in any other way, he will have to go to the trustees and he will have to try and get consent from the trustees to give him access to the assets, which sounds all well and good until we remember that the assets support the operating companies, and the operating company is what in terms of what Mr Clayton receives, is the whole of the property that he gets under the division. So if the assets, the land assets, are sold in order to meet any order of the Court, and if Mr Clayton’s required to go to the trustees, and if they accede, the other trustee we’re talking about, the Claymark Trust, and if they –

But we’re not on the Claymark Trust though, are we, we’re on the Vaughan Trust?

Well the Vaughan Road Property Trust, with respect, is in the same situation. All of the land sits under the sawmills.

But why is that an argument that should cut any ice with us. If we don’t accept the substance of your argument? I mean, it’s really just, it’s consequential isn't it? If that’s what the Relationship Property Act requires, is that a submission that we can take any account of?

Yes, yes, no I understand that and you'll develop that in relation to the 28/2015 appeal tomorrow.

Yes. In relation to the power of appointment as to whether “it,” property, what needs to be developed next, and no one’s come anywhere near it yet, with respect, is what is the source of those assets held in the trust? Because if the source of those assets is separate property, and they are transferred to the trust, then, when one looks at the power of appointment and says, “We’re going to value it on the basis that it’s the equivalent of the net equity in the Vaughan Road Property Trust,” one needs to look to see what does that net equity represent, is it relationship property originally or was it separate property originally?

That’s not a complete answer either though, because if it was funded by interest-free loans out of relationship property, of course it has to have a relationship property component.

Well we were taken this morning to accounts that show substantial interest-free loans from Mr Clayton, out of relationship property.

Well it was an interest-free loan from Mr Clayton made from money, other than the actual assets which were being funded, because you say they're separate property. What else could it be?

Yes. And when the de facto relationship began there were these items of property. There were, first of all, Mr Clayton’s two parcels of land in Vaughan Road, Rotorua. Second, there was his business, which became Claymark Industries Limited, and that, during the course of the marriage, has transferred to Claymark Holdings Limited.

That’s what my learned friend, Ms Chambers, told Your Honour but, in fact, before it was wound up it was amalgamated as part of Clayton Holdings Limited.

Claymark Holdings Limited, with respect, has never been relationship property. Claymark Holdings Limited is the company that started, back in 1984, and grew during the marriage.

So what happened with the amalgamation, I’m sorry, there must be evidence about that?

Well in relation to the amalgamation, Your Honour, and remembering I wasn’t counsel in the Courts below, but there's a page in the Family Court judgment which says this simply shows us what happened in terms of all these companies, and here’s a simple illustration. Well I look at the page and I have to say it’s one of the most complex illustrations I’ve ever seen.

But hang on. This case has been through three Courts before it’s got here and we have findings which haven't been substantially challenged. Well, Mr Carruthers invites us to interpret the Family Court judgment in a way that’s more favourable to

him but nobody’s taking us to evidence behind the findings that we’ve got in the

But the findings in the Court, with respect, are findings that favour Mr Clayton, because the findings in the Court, and they start at paragraph 32. May I just get my judgment?

Yes. But, in any event, you were indicating you’d like to address this tomorrow, and I’m really trying to just get a feel for the scope of what you want to address because I had thought that you were going to simply come in with any quick additional points in support of Mr Carruthers who really has had the carriage of the argument for the first appellant, and the whole thing’s been slightly irregular. But are you saying you want to develop a different substantial argument in the first appeal, the 213 appeal?

Well, no, Your Honour, what I’m doing is I’m just following the findings that were made in the Family Court that had never been challenged and –

Look at page 54 first because that’s the summary. At the time the relationship started, Mr Clayton’s property existed of three pieces of land and a fledgling business. Mr Clayton purchased his father’s business in 1991 or 1992. So did that become relationship property then?

No, Your Honour, it didn't. That’s the way – this is narrative in terms of the way in which the Judge first of all set out the history. The important part in terms of the findings start at paragraph 32, I think it is – 36, where the Judge in completely orthodox fashion and in accordance with the statute that we operate under begins with the classification of the property as separate or relationship property and

addresses an argument that was advanced by Mrs Clayton at paragraph 38 that section 8(1)(e) applied because the property was acquired during the marriage and at 39, and my learned friend Mr Carruthers took the Court here to this judgment, what the Family Court said half way through that was whilst the business may have been in a precarious financial position the fact remains that Mr Clayton or his entities owned business assets which had the origins in his pre-relationship property.

Okay. Well, that hasn’t actually addressed the point I asked you about. In 1991/92

Yes but he didn't purchase it. That’s what number 6 says but in fact what happens, and one can see it with reference to page 58, is that while it’s called his father’s business – that’s that diagram.

That’s the said-to-be straightforward diagram. It’s not but at the top left-hand column, those are the companies that belonged to Arnold Clayton which were joinery companies and prior to the relationship Mr Clayton had an agreement with his father that these businesses would become part of Mr Clayton’s business. And we can see that that happened with reference to the fact, although in the middle of it it’s got Mark Clayton personally, they all went into that company under Mark Clayton.

No, one step at a time. Who purchased the shares in Arnold Clayton’s companies?

Well, Your Honour, I have to say there’s absolutely no evidence about that at all.

I can actually find – there is a little bit of evidence through various affidavits and I can take Your Honours to them.

Well, it actually says so. It says so that he bought the shares and the companies were amalgamated into Clayton Holdings, so they’ve done an amalgamation and everything became Clayton Holdings but the shares were purchased by, during the relationship by Mr Clayton.

In accordance with the agreement he had with his father before the relationship started.

Favourable terms, but I think he said he purchased them on favourable terms but that’s normally regarded as a purchase, isn’t it, in these cases, or it used to be said in a farming case, “Well, I bought the farm and Mum and Dad gave it to me at Government value and it really should be treated as a gift.” I don’t think that argument has ever been bought, has it?

I think it may have been with some unequal share in cases taken into account because I think there might have been, in part of that, in Nation one of the arguments for unequal sharing. I’m not sure it succeeded in that case but it has in others.

If I could just leave the narrative and come to the actual finding, which is at paragraph 42. “On the evidence put before the Court, I am satisfied that all property owned by Mr Clayton has been acquired out of his separate property, being the property he owned prior to the relationship beginning the section at Banksia Place and the two parcels of land in Vaughan Road. His property can be traced both to the proceeds of disposition of separate property and to income or gains from separate property. The issue becomes, then, whether the income or gains derived from separate property are subject to section 9A.” So the finding is –

Well, it can’t really be the case if there were borrowings, can it, because if there were borrowings the property has been acquired through borrowings so it can’t possibly be the case unless there were no borrowings ever in that group that everything stemmed from the separate property, the 500,000, that in effect wasn’t 500,000 anyway because two of the properties that made up that 500,000 went into the trust so there were no proceeds from that upon which they could build relationship property.

The finding is just one step, isn’t it, along the way in terms of the decision that section

9A applies and the decision that the value of the separate property was 500,000 and

everything else was relationship property, surely that’s the finding you have to –

It is, Your Honour, and the answer in relation to that is section 9A doesn’t make the underlying property relationship property. It makes the increase in value relationship property. In Rose this was addressed by Justice Blanchard, paragraph 24, where Justice Blanchard said that the increase in property is an independent species of property. So it’s not –

But not if there’s a finding that the increase in value – that what you put to work becomes relationship property because of the section 9A considerations. If you maintain it entirely separately, that might be right.

But by Rose this independent species of property, what happens is Mrs Clayton doesn’t share in the shareholding of these businesses. She shares only in the increase in value which is that independent species of property. What’s important in terms of the finding – and it’s at paragraph 66 – is that the Court doesn’t say or the Court does say, is the way I’d put it, the Court finds – “I find that the increase in value of Mr Clayton’s separate property over and above 500,000 is relationship property to be shared equally.” So the separate property, the underlying property, remains separate. The increase in value is to be shared equally. Importantly, the Judge does not order that the income from that property is to be shared.

Well, I read this as everything over and above $500,000 which is the value of the separate property is gain, which applying section 9A is relationship property on finding of the Judge.

That is the property to be shared. That is the independent species of property to be shared but the underlying property throughout the relationship remained separate property. That is what 42 says and that is what 65 says and that’s what 66 says. So

– and this follows, Your Honour, with this cornerstone provision in the Act which says that during a marriage it’s open to you to deal with your property. You can deal with the property and it’s not going to, in any way, other than the claw-back provisions that we know about in section 44 and 44C, it’s not going to bite at all. So Mr Clayton has his separate property at the date of commencement of the relationship. There’s an arbitrary figure put on it. I can show Your Honour’s how that happened. There’s an arbitrary figure put on it at date of relationship. During the whole of the marriage his property remained separate, all of it. The Judge is satisfied she can trace it all back –

It just turns the whole regime on its head. That’s just crazy. Of course that can’t be

the law. I mean, they applied, they applied the money that he would otherwise have

gained. He had put it back into the business. That was an application of relationship property. That’s why the Judge says, at 66, all of the increase in value is relationship property, everything above 500,000.

That’s the whole point. That’s an just an application of the normal rule that when you earn money which is relationship property and you put it into your business, you are turning what was a separate asset into relationship property.

That’s what the Judge has found though. She says it in words of one syllable in 66.

But it’s not the shareholding that’s relationship property and it’s not the –

As I say, it’s the same as in Rose v Rose. In Rose v Rose the wife wasn’t able to go

and say that she was going to take over the piece of land. She was entitled to –

If the property was worth 500,000 in 1986 and it’s worth 28 million now, 27.5 million is relationship property.

Well, if you wanted to address this you should have made some written submissions

on it. I mean, you can’t just pull it out of a hat in the middle of the hearing.

But you haven’t made any submissions on Vaughan Road at all, which is what we’re

Yes, but not to create a completely new case involving relitigating the factual findings made in the Family Court.

Well, with respect, I am not doing so. I am adopting the findings made in the Family

You’re adopting submission that Mr Carruthers made, that 42 is to be interpreted in a way that, I suppose, members of the Court are indicating they don’t read it in that light, but he’s made that submission. Are you wanting to say anything additional to that?

– Your Honour. But can I just say, if I may just make this submission, this case has,

with respect, advanced through the Courts on the basis that it’s $28 million worth of –

– in a way the Court has no basis for knowing that, and no valuations have been done, and there is simply an assertion based on some evidence that was put forward for a different purpose, so I don’t think the Court is in any position to say that there is

Thank you, Your Honour. But there actually are valuations before the Court and with reference to those valuations it’s possible, and I’ll develop this in the 44C argument, it’s possible to show where the parties parted company in relation to value and how that happened and how as a result of that this case has been advanced through the Courts on the basis that there is $28 million worth of property that Mr Clayton’s refusing to share, and, in fact, the values that we now have, and I can take Your Honours to, show what the figures are that we’re talking about, and also in relation to the main difference between us is the value of the operating company, Claymark Holdings Limited, which Mrs Clayton has always advanced on the basis that it’s worth $17.5 million or not less. Today she took the Court to the bankruptcy case, which I’ll come back to tomorrow, which showed that in the bankruptcy Court she accepted that the value of the operating businesses was negative equity. So that changes the whole of what the Court is going to be looking at –

It doesn’t really change the argument that you’ve put and which has run into some

– a page in the evidence, page 938 of, it’s volume D. It’s just I’d just like you to look at it and come back tomorrow on the points I’m going to raise.

938, it’s in the orange version, orange booklet. This is Mr Clayton’s narrative affidavit

Yes, okay, secondly – I’m not really asking for concession, I just want you to come back tomorrow. “In the same year my father had bypass heart surgery and it became obvious he was going to need to slow down. So I purchased his business from him in 1992. It was on terms that were very generous to me. On the face of it, in the absence of something more than we have, that too would be relationship property.”

– that looks like relationship property. Acquired after, by him after marriage. Possibly it mightn’t be, but on the face of it, unless there’s some more information, it is – I don’t really want an answer now, I’m just drawing your attention to it.

No, I’m not going to answer it right now. I’ve heard the question, Your Honour, and if

Then 25, “On 23 April Melanie and my second daughter, Anna, was born. Shortly thereafter we moved into the newly completed house at Banksia Place.” How was the house funded?

The house, Your Honour, the section was purchased prior to the separation and the house was funded by getting cheap timber from people associated with the business. It’s –

So that looks, so the extent to which there’s a house on it it looks as though it’s been

Okay, all right, okay. To that extent, when Banksia goes in to, does that wind up in one of the trusts?

The building of the house was funded through his father’s business, he says, but after the relationship started, so there was a property built on it.

Okay, so we’re looking at the Katikati sawmilling operation and the, and his father’s

Yes. And what Your Honour has just identified is something I will address tomorrow, but I have to say that the difficulty in this case is that the way in which the evidence came in the Family Court was that it came in on the basis that just the pool of

But there’s a finding effectively that everything over 500,000 is relationship property, it doesn’t have to be 27 million, it can be a million dollars. And has that finding been challenged in the Court of Appeal or an attempt to challenge it in front of us?

No, I’m not interested in the quantum at the moment other than that anything over

That's dealing with the operating businesses, the value from 500,000 up to the valuation that's been adopted by the Courts is property to be shared under section

Because the underlying property remained separate throughout the marriage, that's the point, it never lost its separate property classification.

Can you tell me when Clayton – I have real trouble understanding that, but can you, I would quite like to know how and when everything went into the Vaughan Property Trust. When was Clayton Holdings actually incorporated?

So that’s post – so everything that was amalgamated into Clayton Holdings was amalgamated into a company that was started and set up after the marriage?

Well, I don’t understand that, because – well for a start you’ve just been pointed to the sawmilling business post the marriage and the other one, and what was actually sourced because the Vaughan – the Banksia property, which was separate property, went into the – was a house.

The Vaughan Road properties, which were a separate property, went into the Vaughan Road Trust. There was a fledgling business which doesn’t seem to have gone anywhere.

So where does the separate property create all this other property other than businesses that have been started since the marriage, or the relationship started?

Forget the finding, just tell me sensibly where it possibly could come from separate property when the only thing is actually in the Vaughan Property Trust, the two

And the fledgling business which doesn’t seem to have been worth much. So where

does it all come from if it doesn’t come from what happened during the relationship?

Well at the date the relationship commenced, there was the Banksia Street property

Family home, no, it’s the family home. There were the two parcels of land in Vaughan Road, which belonged to Claymark Industries Limited, the 1984 company. There was the agreement with the father Arnold that the businesses would be transferred and there was, I’ve already said Banksia Place. During the marriage what happened was that the –

But it doesn’t matter. He didn’t buy it until after the relationship. The fact he had an

Well I’ll have to come back to the evidence as to how the, what the structure of the

I think it might be sensible, we are going to hear this tomorrow, we’re going to hear it

Is there anything else you want to add in relation to the Vaughan Street Trust appeal?

I hope not Your Honour. I have to say as I was listening there were things that I

I’d really like Ms Chambers to be able to get up tomorrow morning, do a quick, I hope, reply, and then get onto the other appeal so that you’ve got, you obviously will need some time to develop the detailed argument you want to advance to us in the

38, sorry, appeal. But is there anything before we close off and then Ms Chambers can reply on the first appeal in the morning, is there anything else you want to add?

No, thank you Your Honour, I’ll leave it there because the submissions tomorrow that

Yes, and we understand that there is a certain extent to which these two appeals overlap.

And so it’s not hermetically sealed but we also have on board that you adopt Mr Carruther’s submissions to the extent that you haven’t advanced other ones to us?

Your Honours, may I be heard briefly on an issue that arose out of yesterday’s hearing. Overnight the concern is about the nature of the powers in the VRPT deed and whether they are usual powers and what I’ve done overnight is obtained a copy of Butterworth’s standard form of discretionary trust and I have prepared a two page outline of the provisions that are common between the VRPT trust deed and the Butterworth’s precedent, and all I want to do is hand that up. I’ve given a copy to my learned friend. I understand there’ll be an objection to the course I propose, but I have said to her that I wouldn’t expect her to be replying on this in the 23 appeal and from my point of view I’m content for her to reply on it in the 38 appeal when she comes to that point.

I do oppose this course. I haven’t read the document that my learned friend is proposing. It’s some three pages long plus a document which is effectively evidence from the Bar. It’s too late, in my submission, and it’s unfair particularly given the principles of the Act in terms of dealing with these matters efficiently for my friend, having sat down, to now produce yet more submissions and evidence from the Bar in regard to this matter.

Well he was asked, Ms Chambers, questions about whether the terms of the trust were usual or not. If this is a published source, I haven’t, of course, seen the, what comes with it, whether it’s simply the Butterworth’s published source, there would seem to be very little basis on which we couldn’t receive that, if it’s simply, you know, in public currency. Yes, of course you can reply on it, and if you need more time that’s fine, but is there any principal basis on which there could be an objection to that, given the questions that were asked by the Bench?

Well if it’s being put forward, and I don’t know whether this is correct, that this is a standard trust deed, then presumably I need to go back and have a look to see whatever standard trust deeds are provided by NexisLexis, what are used by the big

firms, what is standard practice in terms of trust deeds et cetera. I mean it’s a matter for which there could be reply evidence. If my friend is saying this is a standard trust deed, I don’t know whether it is or not.

Well, but if you’re given leave to put in additional information if you obtain it, what’s

More cost and delay but perhaps if Your Honour is minded to accept it, and my friend

seems to be putting in a whole series of more, further submissions, it’s three pages.

Well we don’t want further submissions. If we be handed anything it should simply

Well I’m in Your Honour’s hands on that. It was just – the narrative is simply to deal with the relationship of the clauses to the precedent. But I’m absolutely in Your Honour’s hands and I certainly don’t want to make any further –

I wonder whether Ms Chambers should just have a chance to have a look at it first so that if there is anything that is objectionable in terms of extra submissions or that she needs a chance to reply –

Well I’m not interested really in extra submissions. What I’m interested in is simply

Well I can hand up the published document. Really the narrative is simply to assist the Court but I’m content to just hand up the published document. Your Honours, that’s as much as I wanted.

Yes, thank you. All right Ms Chambers, you’ll have leave to put in any additional

Thank you Ma’am. Yes, I don’t know the date of this or how many other precedents there are in that book but I’ll have a look at that when I get a chance.

Yes, presumably this is just version 47.1 of a trust deed from whoever produced this.

Is it the short point that Your Honour’s able to go and have a look if you wish to in regard to precedents provided online to practitioners in regard to trusts?

Well we’re likely to have regard to, either from our own experience or otherwise, to whether just how usual these clauses are. Now that may not be in the end controlling but we are, for myself, I am likely to do that, and I found it unhelpful not to have the most help I could get.

Mr Carruthers, can we have a cover page, thank you. I appreciate it’s an online

Yes it is. It’s the – from LexisNexis New Zealand forms and precedents, and it’s

Thank you Ma’am. Now just briefly by way of reply to my learned friend Mr Carruthers. His submission was concerning, particularly with the Court of Appeal finding that Mr Clayton, as principal family member, could remove the final beneficiaries pursuant to his ability to remove beneficiaries. But as Your Honours pointed out, Her Honour the Chief Justice, re-settlement solves that problem. As Justice Glazebrook pointed out, distribution of the all the trust assets solve that problem. But I also want to emphasise Justice Arnold’s point about vesting, bringing forward the vesting date. That’s important because that is exactly the same as the Court of Appeal’s finding because it has the affect of completely removing the girls as final beneficiaries and he has power to do that and that’s in the trust deed under definitions of vesting which is E1336. So I just re-emphasise the ability to bring

forward the vesting date that Mr Clayton has because of the definition of “vesting date.”

In any event I submit that applying robust reality, what is the point of saying that he has trustee obligation when Mr Clayton is the sole trustee, doesn’t even remember that he has established this trust and has no idea what his trustee obligations are? If someone put in front of him a piece of paper bringing forward the vesting date and distributing the assets to himself, we have every reason to believe on his evidence that he would simply sign it. He is an emperor with no clothes and this Court should point out the reality of his nakedness.

Your Honour Justice Glazebrook was asking where did the money come from in the beginning of the Vaughan Road Property Trust. The answer to that is also in volume E, because we do have the first set of accounts in regard to this trust. It’s at page 1348, and that shows that by 2000 it had income of some 59,000 in it and that’s what its equity was. It was funded in terms of its acquisitions on page 1352 in part by third party borrowing which is AXA and BNZ but also by the Claymark – by the group, Claymark Trust lent it $230,000, Claymark Industries lent it $137,000, and Mr and Mrs Clayton’s – sorry, Mr Clayton’s parents lent $300,000. That allowed the trust to acquire property at Vaughan Road, Rotorua, which you’ll see at 1354, which it acquired in 1999 for 690 – sorry, it’s a bit more than that. For $1.9 million. No, that can’t be right. Yes, $1.9 million. But where it says the land and buildings at cost, 10-

24 Vaughan Road, Rotorua, that is actually four properties at Vaughan Road, Remuera – sorry, Rotorua, including the two original separate property ones, which were owned by the 1984 company which gets struck off, and two more, and you’ll see that evidence referenced in my chronology on the date 21 July 1999. The husband as trustee of the Vaughan Road Property Trust purchases property at Vaughan Road from Claymark Properties Limited, which is another Claymark business, and the 1984 company and from Earl Karaitiana, who is an unrelated vendor. So by –

21 July 1999 so – and it has the page reference in the evidence. So in July 1999 the husband as the trustee purchases four pieces of land and the other page reference for that is page 309 where Mrs Clayton tracks through in her affidavit the various titles, but, and some of the titles get amalgamated so it’s a little bit complicated but that is essentially what happens.

And I had, I think, yesterday morning referred Your Honours to 1402 in the bundle, which is quite a good summary of who funds the Vaughan Road Property Trust from then on and as I said from 2001 onwards Mr Clayton himself is funding this trust one million dollars, 1.9 million and three million dollars. So first year he’s not personally lending them anything, but the entities he controls is second, third, fourth, and subsequent years he’s funding it.

Can you just help me on how the – if the properties that were in the trust initially were separate property, and if the properties from then on are in the trust, leaving aside the lending from 2001 onwards, how do the properties in the trust become relationship property, even under a section 9 analysis?

I’m not sure if they do, do they? It’s the interest in the trust that becomes relationship

Exactly, that’s what I’m asking. So it’s not the underlying assets. It’s the interest in the trust that becomes relationship property and how does that become relationship property through the loans to the trust by Mr Clayton or entities associated with him which in themselves are relationship property, or how conceptually does that work on your analysis?

Because he gets interests and rights during the marriage in regard to the trust deed, they are items of property which become relationship property under section 8(1)(e).

And how do you deal with the separate property that arose beforehand? Is it the – so

it’s the increase in value of those, the trust assets, is that how that works?

It’s not entirely clear that that was the way that it was conceptualised on the District

But then one can understand that because there was a disregarding of the trust altogether.

I don’t know the answer to that but it’s 1.9 million for all four. I don’t know whether there’s any evidence breaking it down. But we know the trust purchases it and we know that relationship property, ie, property from the businesses which are effectively relationship property, given that their increase in value is relationship property but for

500,000 is used to help fund that interest-free, from memory. I don’t think it’s paying any interest to those entities. It doesn’t look like it’s the amount of interest. It looks insufficient for the full amount of the loans. So in terms of the looking at whether or

not that, those components lost their separate property nature those transactions given that it’s effectively been purchased and sold by Mr Clayton in his personal capacity the separate property nature of them is lost.

Now, my instructing solicitor has just referred me to the evidence about that purchase which is Mr Clayton’s affidavit, volume D, page 937 paragraph 19. It’s Mr Clayton’s affidavit at 10 March 2009. “In this context, I incorporated a company in 1985, Claymark Industries Limited” – and that’s what we call the 1984 company to try to stop confusion – “which purchased a bare piece of land adjoining my father’s business in Vaughan Road, being what I think was 26 Vaughan Road. This has since been transferred to the Vaughan Road Property Trust. I set up a basic yard and dry shed on the property and then shifted Rotorua Timber Suppliers” – which wasn’t a company, it was just him trading under a trade name – “to the site. I cannot remember what Claymark Industries Limited paid for this property. I’ve not been able to locate any documents in relation to the purchase but I have instructed my solicitors to undertake a title search to see what further information may be revealed.” So it’s not wildly helpful but remember that what he owned, of course, in terms of his separate property was the shares in the ’84 company. That’s what he owned and that goes because that company gets struck off.

That may have been a later amalgamation because it had already been transferred into industries, I think. The business was transferred.

I think that’s right. It’s not struck off until 2001 and the holding company is formed in

1991 if you have a look at my chronology, which is the company, which is the holding company. So Claymark – the 1984 company just withers and dies off on the side and the Family Court Judge doesn’t really kind of focus on what is the item of

separate property he had in terms of the business. What he had was shares and they disappeared during the marriage. Instead, she looks at the business and says, “Well, I’m going to allow a bit for the fact that he had a business going before the relationship started,” so she takes a generous view to Mr Clayton.

Now, Your Honours were asking with Mr Carruthers, well, Mr Carruthers was indicating that there was a discussion around where will the payment for Mrs Clayton’s claim in regard to the Vaughan Road Property Trust come from and of course Mrs Clayton’s reply to that is, “Well, Mr Clayton himself values his total assets as some $27, 29 million,” and I referred to that evidence earlier. But there is of course concern. We know that Mr Clayton had a strategy in BNZ 17 which he told his bankers about, about folding the business and then buying it back cheap through profiles. Do you remember I pointed that evidence out to you yesterday? So in my submission the order should be that Mr Clayton pays – this is assuming that Your Honours find that there’s a property interest that therefore it’s an order under the Act that Mr Clayton pay Mrs Clayton an amount in terms of the value of his property interests. But in addition, I submit that Your Honour could make a machinery order in much the same way as Their Honours did in Spry. If Dr Spry didn't pay, they put in a machinery order. If Mr Clayton didn't pay and elected to go bankrupt rather than pay his wife, then, in my submission, the appropriate backup order would be that if Mr Clayton doesn’t comply with an order to make payment, then under section 33(3)(l) he must transfer his interests and rights, under the trust, to Mrs Clayton. Again, it doesn’t – it is only a transfer of property, relationship property, not of the trust assets. That is the appropriate machinery order.

What about an order that was made in Poon that he exercise his power of appointment in favour of Mrs Clayton?

As to the proportion of the assets of the trust that should be. That will interfere, though, with the assets of the trust won't it?

Well the – if you – section 33 does seem to contemplate, well does contemplate orders against not just relationship property but property, because when one looks at the machinery orders, for example, 33(3)(e), the legislation says that the Court can make an order for the partition or vesting of any property, which must be taken as being deliberate, so – and likewise, under (k), the Court can make an order for the transfer of the title or documents of title of any property. It seems to give a wide power, as you’d expect under this Act, to make the type of orders that Your Honour is discussing. So, another alternative would be an order that, as trustee, he must vest the properties owned by the Vaughan Road Trust Deed in Mrs Clayton or transfer that title.

Yes. There was also discussion yesterday afternoon about the definition of property and I just wanted to remind Your Honours of Z v Z (No.2) [1997] 2 NZLR 258 (CA) which did have quite a significant discussion on the definition of property. I refer to it in 86 and 87 of my submissions. And, in particular, Their Honours finding that, “The concept of property is fluid and has extended, over the years, to include interests which might not earlier have been covered by it. Its meaning and scope must be affected by the statutory and wider context in which it is used. The wider context includes changing social values, economic interests and technological developments.”

So that’s, of course, a seven-member Court of Appeal bench indicating the movement of the meaning of property. One of the academic commentators says it’s like the word “love,” it means different things in different contexts.

Can I just answer that for a minute? There's never been a claim that Mr Clayton’s

interests in the Claymark Trust is, itself, relationship property, is that right?

Sorry, I’ve – before I jumped ahead, I was really looking at the Court of Appeal judgment. Is there an assertion that his interests should be valued in the same sort of way as it has been, and approached in the same sort of way as the Court of Appeal approached the Vaughan Road Property Trust?

Yes and I’ll have to take you back to the unfortunate history of these proceedings. If Your Honour looks at the Family Court decision you'll see that bundle of rights was argued by Mrs Clayton. Page 62 of volume A. That was – paragraph 26 lists the claims Mrs Clayton made in the Family Court in regard to the trust assets. So she argued –

The Family Court Judge decides that it is an illusory trust and doesn’t deal with the

Yes, that's what I’m – I’m just trying to get my head around the Claymark...

No, but was it not suggested that Mr Clayton’s bundle of rights in relation to Claymark

Only under 44 – hang on, I’ll find Her Honour’s rulings. She doesn’t go on to deal

So 68 she deals with the Claymark Trust. And the argument under section 182, which you're going to advance to us in the second appeal.

Was that the only basis that was put forward? It wasn’t suggested that Claymark

Well, I had understood that that argument was made in regard to all of the trust interests, because obviously if it applies to one it applies to the rest, because all of the trusts were created during the marriage. But I’ll just check with my instructing solicitor.

Well then you see what happens, Sir, is that it goes to the High Court on the issues decided by the – no, hang on, I’d better check that, because I wasn’t counsel. I’d better just check to make sure I’ve got that right. Yes, my instructing solicitor’s telling me that in the Family Court Mrs Clayton argued bundle of rights in regard to all of the trusts, and she has the submissions here if anybody wants to see that, from Mrs Clayton. Then in the High Court –

Just pause there. The Judge, Judge Munro, doesn’t deal with bundle of rights in

In the High Court in regard to the trusts, findings of Her Honour Judge Munro, Mrs

– and sham trust. And in regard to Claymark she appeals, but only under 44C and

All right. So for practical purposes a bundle of rights argument is not on the table in relation to Claymark Trust?

Is there a reason for that? The trust doesn’t have quite the same features, I think, that attracted attention in the Court of Appeal in relation to the Vaughan Road Property Trust.

Well, I think he wasn’t a – was he not a beneficiary and he had a extra trustee of the

So the case has gone through its appeal process in part in response to the judgments of Their Honours, so in reaction to that. I need to correct slightly. My instructing solicitor has just referred me to paragraph 151 of the High Court decision at page 152 green volume, volume A. It does appear that Ms Hunter did raise alternative claims in relation to the trusts which were not considered having regard to the findings made by the Judge under section 44 of the Act.

I think – aren’t you saying it was alive in the High Court but not dealt with for the reasons there and then presumably that carries through into the Court of Appeal?

Well, except that – well, that’s a difficult question. The matter is down for quantification hearing in March in the Rotorua High Court but it is a quantification hearing.

In the High Court but this indicates that it would have to be pursued through the

The Court of Appeal transferred it to the High Court which, as we all agreed, should have happened way earlier. I applied but the Family Court refused to transfer it. It should have been in the High Court from the start with a commercial Judge.

Paragraph 151, however, is still – wasn’t interfered with by the Court of Appeal

So that is the question whether bundle of rights is applicable in relation – and when I say “bundle of rights” I use that loosely. It’s the Vaughan Road property bundle of arguments are relation to Claymark is still then on the table, at least as an alternative to the 44 and 44C claims.

It is pretty obviously a 44C as well, and Their Honours in the Court of Appeal having heard from us only on sham and illusory trust said, “Well, what about 44C, can we have written submissions on 44C?” which we did supply. I think that’s recorded in Their Honours’ judgment but in the end they decided we don’t need to deal with 44C because we consider the power of appointment of beneficiaries to be property. It is a complicated case because he had 11 trusts which were attacked on different grounds, and of course it’s a complicated structure.

Sorry, the answer you just gave about the Court of Appeal returning it to the High Court, I thought that was for the valuation. If the argument about an interest in the Claymark Trust is live, as appears to be the case under paragraph 151, what was contemplated there is that that application would have to go back to the Family Court. Do the terms of the Court of Appeal order transfer that also into the High Court? I’d just like to check that.

It wasn’t dealt with. We have no findings on it except, I suppose, a finding implicitly against it because the Family Court Judge doesn’t mention it.

I’d just like to look at the terms of the Court of Appeal. I suppose it’s up the front. Was it a separate judgment? It’s only sent back to the High Court for determination for the section 44 matter in relation to the trust and issues of quantum.

Okay. We’ve got the most unsatisfactory possibility of proceedings in two streams,

If Mrs Clayton was successful in her appeal, she doesn’t care, so it solves the problem.

So by that you mean if she’s successful as to section 44C and 182, she doesn’t

If it hasn’t been dealt with, wouldn't you send it back to the High Court saying the

Well, you would have thought but they haven’t. The Court of Appeal hasn’t done

In the Court of Appeal all counsel agreed it was sensible that the whole thing should be transferred to the High Court.

Just three final points in reply, my learned friend said it wasn’t clear why the Court of Appeal felt that the power which was property was relationship property, well, that’s easy, it’s section 81E. It’s acquired during the relationship. In terms of the legislative framework, I do submit that section 4 is far more important than 4B because of its very specific provisions in regard to cutting across the normal common law and equitable rules. The Act applies instead of the rules and presumptions of the common law and of equity to the extent that they apply to transactions between spouses in respect of property, and subsection 4, any questions which arise relating to relationship property must be decided if it’s decided under this Act, and finally it is disappointing to read submissions that in 2015 Mrs Clayton did not contribute in any

way to the assets of the Vaughan Road Property Trust. Given the long marriage and at the very least as a traditional wife we recognise now in the modern world that this is a significant contribution.

I’m now back on my roadmap at page 1 and the first issue is was there a disposition of relationship property to the Claymark Trust, and I’ve detailed the gifts that were made during the relationship and I’m going to take you to the accounts but I won’t do that now, but that is the list in the accounts of gifts made. Now, I know that the Family Court for some reason only refers to the first three gifts, but as we go through the accounts you’ll see that Mr Clayton in fact gifted $243,000 of relationship property to this trust because it came from his advances which we say are relationship property for the reasons I advanced yesterday. I don’t know why the later gifts have been ignored.

Then there were the interest free advances, which on the case law is a disposition of relationship property because of the interest free nature of them. Then there were dispositions, and they were distributions from the Vaughan Road Property Trust to this trust, and you've seen how the Vaughan Road Property Trust was funded. The issue there is, of course, that 44C says, “Relationship property disposed of to a trust.” The issue there is dealt with in my written submissions, so I won't come back to it, is how do you treat that for 44C because it’s pretty easy to have an interloper trust to avoid 44C, if we don’t address that.

And the final one is the loans made by Mr Clayton to a company called Kaimai Developments Limited. It is 100% owned by the Claymark Trust. It owns the avocado orchard and loans were made to it by Mr Clayton and, again, it’s the issue under 44C, well is that, effectively, an interest free loans, is that effectively captured by 44C, and I’ve dealt with that in my submissions.

Point 2, that the advances were relationship property. I dealt with yesterday, so I don’t need to deal with that again, and that was his concessions in his counsel’s submissions, his affidavit, his cross-examination, the wording of the Act and Fisher, which explores that issue thoroughly, and the findings of the Family Court Judge, and the fact that he had a fairly small amount of separate property, which certainly didn't create the large volumes of money here, many years into the relationship.

So the accounts for this trust, which is established in 1994, but we do not have the earlier accounts. There was no explanation given for that, they simply never appeared, so we don’t know the earlier funding. But I do want to take you through those because it tells you exactly how this trust operated and why Mrs Clayton should be successful in regard to 44C and 182. So I’d ask Your Honours to go to the yellow volume, at page 1213, it’s volume E.

Now this 121 – so these are the 2000 accounts, but they have the 1999 accounts in them and if Your Honours turn to 1216, this is the earliest view of the acorn that grows the oak tree, which we say should be captured by section 44C. And what you can see there is that it has fixed assets of $281,000. And that, we know, is, from page 1222, the land at Katikati and Wellesley Street, the Wellesley Street apartment. And that is funded by Mr Clayton to a significant extent, page 1220. In 1999 Mr Clayton, effectively lent $270,000 to this trust, which only had equity of some 162,000 which had equity of only 126,000 in 1999 and 149,000 in 2000. Page 1221.

It is, Your Honour, and I mean you could – well, it’s a bit less than that, isn’t it? It’s about 250,000. The aluminium specialists, I’m assuming, is a third party independent so take that one out.

You’re right, Your Honour. It is a Clayton business, so it’s 273. And we know, too, that by this stage he’s already gifted $81,000 into this trust because of the evidence on that. So the acorn consists of the $81,000 which he’s gifted plus in 1999 the interest-free loans. And so no independent third party lending until 2000.

And then page 1221, you’ll see there his gifting of 27,000 for that year. If we go to page 1222, there is the Katikati land owned at that stage. We can see its original cost price with its building is $40,000. Oh, no, that’s the revaluation. Its original cost price is 15 plus 60 is $75,000. It is later sold for $103,000 and we can see that in the accounts. Wellesley Street is bought for $25,000 and of course at that stage he’s loaned the trust 166,000.

Okay, oh, yes, 249, okay. Thank you, Sir. And of course he’s loaned the trust most

1244 shows the accounts for 2000 to 2001 and there is the, on page 1247, the big jump in equity in assets and it’s when the, during the 2001 year, further land is bought and the liabilities, obviously, also go up, and he purchases, at page 1251, for

2001, there is outside borrowing there of $575,000 with the Bank of New Zealand to

Smart Limited, Smart Limited, two advances. So at that stage, that snap picture on

31 March 2001, third party lending, plus some increase in Claymark Industries lending has funded those purchases. And the purchase is at a cost of $492,000, and you can see that on page 1254. As you go through you might like to see those gifts again, on 1252, there they are. 1254, the purchasers of the new property, in total,

So then we go to the next year and we see the 1283, the third party funding replaced by Mr Clayton.

1283. 2003, 1286, there's the term liabilities. You'll see that the trust, in 2002, on

2002, Mr Clayton, at that stage, has advanced $548,000 bang on 31 March 2002 presumably. And in the following year that – he pulls out 260,000 back again but that has clearly been applied to pay off what has now became the elders home loan, the second elders, which was smart. I think they must have its name, second tier lender, because that liability has gone and the liability was about $200,000, which is about what Mr Clayton has put into that trust over the course of 2002/2003, and we know it hasn’t been applied, by way of investments under note 3, because the investments of the trust, if anything, has gone down, it’s been used to repay that debt, which is acquired, been used to acquire property. So when Ms McCartney says, “Well, his loans and his money in this,” well, what we say is relationship property, was not used to acquire assets, she’s wrong.

The logical deduction from the accounts is that this money was used to repay debt, used to acquire land, and in that way Mrs Clayton is in exactly the same position as

Mrs Nation and Mrs Gallagher. Interest-free loans of relationship property have been used to acquire trust assets which have, of course, gone up with inflation. And there is the, page 1290, there's the note, which I think appears in just about all of the accounts, under note 8, “The settlor of the trust, Mr Mark Clayton, has advanced funds to the trust. These advances are interest free.”

Do you have to trace it quite so clearly through to assets because if you lend money to the trust for working capital that enables you to keep the assets, in any event, if you need working capital?

I agree, Your Honour. I think Ms McCartney’s argument is because this trust took money in and then invested it in the business, she got the advantage of it anyway. But, as I’ve shown, that's not always the case, because this acorn is growing and this trust is growing in terms of its land assets, which has, we say, diverted relationship property to a trust. But you could say, “Well, so what?” because if he’s lending money interest-free to the trust and then it’s lending it on to the business, which is relationship property anyway, she’s still missing out, because the interest that she would gain from the relationship property or other assets acquired is just sitting there static, frozen, in the same way at Mrs Nation and Mrs Gallagher, that's all she’s got, the frozen asset in regard to the advance back, the debt back.

So, I can go through the rest of these fairly quickly, I think. 1307 is ’04 and ’03, and by that stage, although there’s still one, by that stage Mr Clayton is still nearly a 50% funder of this trust with his interest-free loans, and 1314 shows us another big jump in terms of the trust capital – see how the acorn is growing – to half a million dollars – and 1315 shows the first distribution by this trust to its beneficiaries, which goes to a distribution to Vaughan Road Property Trust. So you can see how all these entities get intermingled and fund each other.

Now also I draw to your attention the motor vehicle costs of $7000, that appears throughout, it’s Mrs Clayton’s car, not disputed. And you’ll see as we go through that that car –

Sorry, where’s the indication that that is distributed to the Vaughan Road Property

I think it shows up in the Vaughan Road Property Trust accounts for ’05, which is at –

In note 3 on 1317 it’s shown as an investment in the Vaughan Road Property Trust.

Yes, it’s, the accounting’s a bit dodgy but you’ll see, page 1430, Vaughan Road Property Trust accounts, 1430, it shows up as income distributed to – no, that's net surplus, sorry. Oh, there it is, sorry, page 1435, it’s called a beneficiary distribution. May have been done for tax purposes, but anyway it’s done. So there goes part of the oak tree through to the Vaughan Road Property Trust. Just, the motor vehicle’s important because it’s Melanie’s, it’s Mrs Clayton’s, she’s a beneficiary of this trust, she gets a benefit from it. It’s important for her expectation of a benefit. The other thing that it’s important for is this. Up until separation, she’s not debited for the use of

that car. The trust just pays extra tax on it because, obviously, it’s not a proper cost to the trust. After separation, the trustees decide she’s going to start incurring a debt and I’m going to point to that under section 182 as indicating why her position changed on divorce. It certainly changed. They started treated her in a far less kindly fashion in regard to this trust.

Now, page 1317, this is the purchase in 2005 of the avocado orchard and you see the Kaimai Development’s limited investment has gone up to 237,000. That’s the avocado orchard coming in. And who’s funded it? Mr Clayton’s advance. Mr Clayton’s advance has increased between 2004 and 2005 by 199,000 which is almost exactly the amount of the increase in the investment in Kaimai Developments Limited. It hasn’t come from anywhere else. There’s no other source from which it could come. All the other lending remains static and it’s not making huge sums of money. In ’04 it suffered a loss of 16,000.

1324, there is another big distribution out to the Vaughan Road Property Trust. There’s after gifting on 1325 and 1326, you see that the Claymark Industries Limited is lending significant sums to the trust, as is Mr Clayton still, 366,000.

1329, there’s an example of Mrs Clayton’s car being properly treated for tax purposes but you’ll note there are no beneficiaries’ accounts saying she owes the money back.

Now, for 2007 we need to go back to 1235 of this bundle. The accounts are done after separation. Again, there’s been a significant distribution in ’06 and ’07 to the Vaughan Road Property Trust and now there is no lending from Mr Clayton. It’s gone. He’s pulled it out. Page 1235 shows finance from both parties. The only thing I want to point out on that is the big distribution to the Vaughan Road Property Trust.

The next page, 1236, two more gifts during the marriage. 1237, again, you see this jump in equity to ’07 and Mr Clayton at that stage is starting to pull back his loan from the ’06 stage of 363,000. It’s very hard to read that line for 2004 but I can tell Your Honours it’s $298,588 from Mr Clayton. And if we keep going through on 1242, you will see the first beneficiaries’ accounts appearing. After separation suddenly Mrs Clayton is incurring a debt in regard to her car. It never appeared before and there’s an adverse treatment of her following separation which is important for her 182 claim.

It might have been helpful to have this in schedule form. I’m just looking at your submissions. You’ve got the advances. Yes.

And finally, if Your Honours go to the cream volume, G, on page 4992, which is Claymark for 2010, you’ll see in 2010 it’s still distributing, making distributions to the Vaughan Road – that’s actually very unclear. It’s come back in as an investment. I think what that means is that the 229,000 was the distribution from Vaughan Road Property Trust which comes back in. It’s complete muddlement but there on page

1993 is Mrs Clayton’s current account by 2010. She’s suddenly owing the trust

51,000 and 1996 shows that by 2009 and 2010 this trust has invested through its current account in the Vaughan Road Property Trust. We can logically deduct where that money’s gone because we know that during the separation period Mr Clayton pulls out five million dollars from the Vaughan Road Property Trust.

Can I just ask something? If you look at 1995, see under “discretionary beneficiaries” children in remoter issue of M A and M Clayton, now, when you took us to some earlier accounts they distinguished between M A Clayton and M Clayton in terms of advances and I think you treated them as all Mr Clayton. I just wondered why. In other words –

Well, it struck me why was there an entry for MA Clayton and then one for M Clayton? As I understand it, you treated them as both coming from the husband but, in fact, it does seem to me that where M Clayton is used it means Mrs Clayton.

It was in the earlier accounts that we were looking at, so if you go on I will find it.

And 1845 are the most recent accounts, I think, that we have, in G, for 2011. 1846, there’s that constant recording about the advances from Mr Clayton being interest- free and page 1849, Mrs Clayton now owes the trust 81,000. No doubt it’s gone up since then. He’s still gifting in 2010 which probably isn’t that significant. He’s got

1852, a relatively small loan. But the net assets have increased to 1.3 million. That, I think, is based on the purchase price of the assets but the land does get valued at

2011 and in fact it just happens to be a bad time for avocado orchards and so the equity goes down for our relationship property case, but that’s just how it was. So that’s why the equity drops. The avocado orchard goes down in value at the time of the Family Court hearing.

So Mrs Clayton’s case is this all grew effectively from the acorn of relationship

The example I had noticed was at volume E at 1220 that you took us to at the outset, but there’s an M A Clayton and then an M Clayton and we don’t have the earlier accounts, so what I wondered was whether ...

Yes, was treated as having – in the accounts as having made an advance because it does seem rather odd.

It does appear to be Mrs Clayton. My instructing solicitor is telling me there is no evidence on that. No one else has picked it up, I think, Your Honour.

It probably – well, I’m too old for mental arithmetic but it may well be that the

I mean, she would have been working. Maybe her wages were applied into the trust and loaned to the trust.

So the arguments for Mr – for the trustees, well, first of all they say, well, Mr Clayton

doesn’t control this trust. Well, the trust deed is in the yellow volume at 1180.

1180. No, it’s not. The Claymark Trust is at 123 – no, where has it gone? There it is. It’s at pages 1188. Page 1189, he’s a beneficiary and so is Melanie in all three categories, former wife and widow. The trustees under 5.1 have a wide discretion to benefit any of the discretionary beneficiaries to the exclusion of the others. 1190 paragraph 5.2, the trustees can dispose of the capital but they can only do that if at least one of the trustees is not a discretionary beneficiary or a relative, and then there’s a majority vote. Now, that is not a hold on the horse because Mr Clayton has power of appointment of trustees and that is under clause 14.1. He can appoint as many as he likes, so he can appoint non-discretionary beneficiaries to get that majority vote.

And that halt on the horses at 5.2 does apply to capital appropriation under clause 8, can’t give away capital without a majority vote where there’s trustees other than beneficiaries, doesn’t apply to 10.1, the ability to resettle.

Resettlement under clause 10 or amendments to the trust under clause 11. And that is a wide power of amendment because the power of amendment can be under

It may. It’s nowhere near as extreme as the Vaughan Road Property Trust and there

are some breaks on him in these trust deed. The 12.2 is the majority provision and

13.1 allows the trustees to take out discretionary beneficiaries, so Mr Clayton no doubt will take Mrs Clayton out of this trust once this litigation is complete and there would be nothing she could do.

He has to have two trustees. That’s another brake on him. Although if you look at

14.4 you can have a trustee company as a sole trustee but he can’t be – it’s actually merely one of two directors of such a company. Well, it’s incomprehensible. Presumably he can be the sole director. It’s badly drafted. And –

That’s what they might mean by governing director, a sole director. I don’t know.

And 14.5, the trustees – Mr Clayton has got power under E to remove any trustee, as well. So under the trust deed I submit that ultimately he does have control because he can stack. Mr Cheshire, well, he is in my submission a puppet of Mr Clayton’s and the most glaringly obvious example of the fact that he is completely at Mr Clayton’s behest is in my chronology in September 2009 when, after separation, on 1

September 2009, Mr Clayton causes to be established a new trust called Lighter Quay Trust. Bryan Cheshire is the settlor and New Zealand Trustee Services Limited is the trustee. Mr Clayton’s not in there as a beneficiary. Neither is Mrs Clayton. And in due course by the time it gets to hearing Mr Cheshire is the sole trustee and he’s also the named beneficiary under the trust deed. The evidence became clear and the reference is there in the evidence that under cross-examination Mr Cheshire said, “Well, actually, of course I hold it for Mark Clayton.” You’ll find that evidence at volume F, the pink volume, 1533. Ms Hunter says, “Let’s talk about the Lighter Quay Trust.” Question on 16, “On the face of it, you are the trustee and the beneficiary in control of that trust?” “Correct.” “There’s no mention of Mark Clayton being a beneficiary of that trust, is there?” “No.” “And your evidence is that you have not nominated him, have you?” “No.” “But you haven’t gone on to tell the Court that the trust is for Mark Clayton’s benefit, have you?” “I haven’t.” That’s in his affidavit or brief or whatever it is. He doesn’t mention this. “Didn't you think that was relevant to this case?” “No.” “Why not?” “ I wasn’t asked.” “So unless we ask you directly what Mark Clayton’s legal beneficial protection entitlements, you weren’t going to answer that?” Over the page, line 4, “Did anyone tell you that this process is” –

So where is the answer that he actually gives apart from the “Why did you?” You

He says he hasn’t decided who the beneficiaries of that trust are, but it’s not you and

“You would recognise that, in fact, the legal obligations you have are to Mr Clayton?” “Yes, I do.” “Yes. And you would no more assert a legal right to the sale proceeds of the Lighter Quay Trust that owns an apartment in Auckland and steal from him, would you?” “No.” And so it goes on.

I’m onto 3B of the roadmap. Mr Carruthers says there was no claim against the trustees. Well, the answer to that is in volume A and it’s a simple point really, page 2 gives the section 44C claim clearly made under –

Page 2 Your Honour, under point 5 in the claim and 44C, of course, is referred to down the bottom. It’s only against Mr Clayton because the trustees are joined after the proceedings are issued and that, of course, is clear from the front page of the trial Judge’s orders at page 102. And page 151 shows Mr Carruthers appearing in regard to the 44C claim in the High Court.

Mrs Clayton did have to file a separate claim against the trustees in regard to the constructive trust claim, but she didn't have to file a new 44C claim because, of course, the trustees were in due course joined to the relationship property proceedings anyway.

Does that mean that all the claims made on page 2 have been applied to the trustees as well?

To the extent that they were relevant because they were parties in that proceeding.

Well we anticipate that there will be sufficient relationship property to meet the 44C

– from Mr Clayton’s half share but I suppose if there wasn’t then we would be looking at income from this trust. Role of the trustees, I’ve already dealt with yesterday.

Business trust, well we, again, we discussed that yesterday. My submission is a simple one, 44C does not recognise that there's some different category, called business trust, and we know that the concept, the distinction in the Matrimonial Property Act between core property and balance property has gone a long time ago. And, of course, Nation v Nation and Ward v Ward both concerned, although Ward, of course is under 182. Nation v Nation, of course concerned a farm which, of course, is a business trust, in my friend’s terminology. Didn't stop a remedy and of course it shouldn’t, in terms of the aims and principles of this legislation.

The extent of property shared, well that’s a she’s got enough, she’s getting enough. We’ve offered her six million, I think, is the effective submission. Of course, no such principle under the Act, and I point to the evidence that I referred to yesterday, that Mr Clayton himself thinks he’s worth somewhere between 27 and $29 million when he goes to the banks or the High Court bankruptcy Court, but he says that she’s entitled to six million.

Fairness, the fairness claim by Mr Clayton is a complete nonsense, given that offer, and also the way that he’s conducted these proceedings and his conduct throughout. He remains of course in control of the vast majority of this couple’s money, including all the income-producing assets, many years later.

So moving on to section 182. Now Mr Clayton says in his submissions at page 105 that if you break down Ward – at paragraph 105 rather – in fact the test is a five-step test. Now I don’t really disagree with that, I think if you break it out he, my learned friend’s correct, except for a slight amendment to his B, because he talks only about Mrs Clayton’s reasonable expectation, but in Ward v Ward Your Honours talked about both parties’ expectations in regard to the trust, although with an emphasis on the claimant’s expectations. But the way I’ve formulated my submissions is in accordance with the standard texts, which tend to treat B, C and D as part of the discretion, and A as the hurdle to jurisdiction.

They do, they do. And so I’m suggesting in my submissions that whether this was a nuptial settlement is actually very straightforward and to the, and really what Their Honours were talking about was the discretion in the Court of Appeal, because this

trust of course was settled during the marriage, Mrs Clayton is a beneficiary in every potential capacity she has, and so are the children, and so is Mr Clayton, it settled during the happy time in this marriage. So I am suggesting it’s a very straightforward hurdle.

Now Mr Carruthers for the trustees says, “Well, the settlement does not make any form of continuing provision for the parties.” Well, that must be wrong and is blatantly wrong, in my submission, yellow volume, the trust deed, volume E, 1189. How can you say that this trust doesn’t make continuing provision for the parties when they are the first four named beneficiaries? And the trust provides wide discretions to distribute to those beneficiaries. And the final beneficiaries are the children of the marriage.

It is, very common. And I’ve taken you already, well, clause 6 means the annual gifting can go out to the discretionary beneficiaries, it contemplates that happening, and 8 allows the trustees to distribute the capital to the discretionary beneficiaries. How can you possibly say that the settlement does not make any form of continuing provision for the parties? Then Mr –

Thank you. Mr Carruthers then argues, well a trust set up for business purposes is not a settlement made by reference to the married state of the parties compared to a trust set up over the family home or chattels. Well, there's nothing in section 182 to support that contention. There's nothing there which says, “Well actually this section only covers trusts set up for the family home and the chattels.” And it’s wrong, on the simple basis of Ward. Ward was a farm, transferred to a trust. In fact, it’s shares in a company that owned a farm.

And finally on this point, of course, this trust is continuing to provide for either or both parties to the marriage, it’s continuing to provide Mrs Clayton with her vehicle expenses.

Well, that’s, yes, that’s one way of doing it. I suppose it’s interest free, to that extent

Well it provides her with a vehicle but charges her interest free in respect to it, is that

The, sorry, the case law emphasising intention of the parties, under section – in terms of nuptial settlements, where, where's that derived from? It’s not in the statute is it?

No, no, where's the, where do they get the emphasis on intention of the parties?

And indeed it contemplates settlements on the parties and very often these settlements are made by other people. Okay, thank you. I suppose their intentions would then be important.

– especially in the context of a discretionary trust, where it becomes more difficult to

– because if it’s a discretionary trust you may not expect to benefit from it because it may be through the children, or something of that nature, I suppose.

Yes, I just don’t – yes, all right. I’m just not sure why, I mean, the intentions of the settlor might – must be relevant but I’m not sure why it’s necessary for, for the emphasis that the Court of Appeal put on the intention of the wife. Anyway, I’m sorry, it’s just a bit of a distraction.

It may have been the Court of Appeal put you wrong because I suspect that was what, maybe what was argued in the Court of Appeal.

Their Honours in this Court said, as part of exercising the discretion you take into –

Oh, so the – so it might be not, not an indication of the barrier to it, but an indication of how you would exercise the discretion, which might be different –

That's right. That's right, so Mr Carruthers’ nice little summary, at paragraph 105, we are currently just looking at whether it’s a nuptial settlement, which is A. But the other points, B, C and D and the point Your Honour the Chief Justice was referring to, where you, according to Ward v Ward, hone in on reasonable expectations at the time of the settlement, comes from Ward, and it goes to the discretion. B, C and D

that's one of the mistakes we say the Court of Appeal made. But I think – and I’ll come to discretion – but I think Your Honour’s point that, well, why are we, even in exercising the discretion, why are we focusing in on the time the trust is established, instead of more properly at the time the marriage, before, immediately before the marriage ends –

Well, which paragraph of Ward v Ward is it? And then move one, because there’s no point in...

But isn’t the answer to that is immediately before the marriage ends, if the settlement is in the control of one of the parties then any reasonable expectation is probably gone? Because in some instances the settlements on say the actual, the actual wife not the former wife explicitly, so isn’t that why they look at the time it was set up and during the...

Because in many cases the reasonable expectation will be, well, if the husband is going to be unreasonable or the wife going to be unreasonable, that you’ll be excluded.

I think Ward v Ward does capture those cases where the trust deed says you're only

a discretionary beneficiary while you’re a wife, because if your expectation –

It’s been largely a dead letter in New Zealand, hasn’t it? How many cases are there

Ward v Ward reinvigorated it, there’s just no doubt about it that it is now a standard

The, it’s from England of course, it’s from English legislation, Australia has it as well, we’ve all stuck and pasted it across. It is one of the major methods of dealing with trusts in the UK, their equivalent provision.

They have those trusts that roll on down majestically, don’t they, marriage portions and all that sort of thing.

She says the remedy for Mrs Spry is actually the equivalent of section 182, so she goes that way, because Australia has it as well.

So the answer to your question is it’s been a bit of a dead letter but it’s now being used and I think it’s, one of the reasons it’s become back is because we now have so many New Zealanders using discretionary trusts for family wealth.

Oh, I see what you mean. I have not done a full search on that. I think my friend has one article commenting on it.

It’s a bit odd, I must say, 25, because the English authority cited isn’t about the expectations at the time of settlement at all, it’s just about the expectations you have as to lifestyle, but anyway.

Now I was dealing with this claim of business trust, and Mr Carruthers in his submissions at paragraph 120 says the Courts have consistently declined to vary beyond the extent to which the – sorry, I’ll start at the beginning of the sentence. “Where the farm is owned before the marriage, often inter-generationally or acquired during the marriage out of pre-marriage separate property and/or borrowing for proper businesses, the Courts have consistently declined to vary beyond the extent to which the farm or farming operation was provided for the applicant.” Well that has to be wrong, it’s completely contrary to Ward for a start, which was a farming case. “If the trust is settled well before the marriage and the farm goes through without the wife claimant,” assuming it is the wife, “being a beneficiary or specified in the trust deed,” and it’s all formed well before the marriage then, of course, 182 will not apply. But otherwise it does and there's no authority quoted by my learned friend for that submission.

Can I just ask a question? There's a case here that’s been given, Kidd v Van den Brink HC Auckland CIV-2009-404-4694, 21 December 2009. Wasn’t there an application, didn't I sit on an application for leave to appeal in relation to that?

They settled it, it didn't proceed, the appeal didn't proceed. Ms McCartney was counsel for the wife.

Well I can't see in any of the English cases that are cited in Ward v Ward authority for saying that you look at the contention of both parties to the marriage at the time the settlement was made. The English cases are all about the expectations of those who settle the trusts and it’s a bit odd really to look at the – I mean, the – Mrs Clayton, in this case, was excluded, in part, because the Court said that she couldn’t have had any expectations because at that stage there was a prenuptial agreement which excluded her in place.

I think, maybe, there are two different sets of expectations aren't there. Looking at it in terms of if the marriage continues what the expectations are. But the trouble with the prenup, of course, it really bites when the marriage is over and there are different considerations at play. Now if you look at it, in terms of a continuing relationship and the parties’ expectations in that context what the prenup provides is, in a sense, neither here nor there because everybody’s assuming the marriage is going to go on and things are going to work, you know, well. So in a sense I can understand talking about the expectations of the parties, in that general sense, while the relationship continues, but it doesn’t answer the question what happens then when it ends.

And, I mean, it’s also a bit odd to pick up the prenup anyway, when it’s been held to

But it’s perfectly possible that s 182 could apply, even if the wife, in this sort of situation, had no idea about the settlement.

Whereas, whereas what this reference to, at the time it was made, would do would make that very different so I think the language is probably pretty loose in paragraph

And how unfair would that result be? If that is the answer, under 182, it encourages the property owning spouse to go off and secretly do trusts doesn’t it? That’s exactly what it encourages, therefore you can't have any expectation of an interest because you didn't even know about it at the time it was forming. And, you know, the – Mrs Clayton does say, and her evidence is, you know, she wasn’t all over the financial affairs. And Mr Clayton says, “I didn't tell her about it,” I started my submissions with that, “Because I didn't think she needed to know and I’m a controlling kind of guy.” So that is a problem with the Ward v Ward test.

Expectation of a benefit, well, my submissions refer to Ms Clayton’s evidence that she said, and this is at paragraph 101 of my submissions, she’s not cross-examined on it, that, “My,” this is at paragraph 101 of my submissions in the footnote, “My expectation at the time that all the trust was set up was that Mark and I would remain married and that he and I would be able to benefit equally from the accumulated wealth.” No cross-examination. The Court of Appeal, though, I think, were of the view that that was not specific enough, but if Mr Clayton’s case was that you didn't expect to benefit from this trust at the time it was established, surely under the Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 approach he had an obligation to say that and give evidence about it and cross-examine her about it.

It was a happy marriage at the time. Everything was going well. They had two little

children. I’m up to bullet point 2 on page 4. The evidence from Mr Clayton that I

referred to yesterday which I won’t take you to again about how he was the breadwinner and he wanted to provide for Melanie and the family and that he never intended to disenfranchise her. There’s no evidence from Mr Clayton that he did not expect to benefit, and that’s part of the test under Ward v Ward and there’s no evidence from him that he did not expect Mrs Clayton to benefit.

The trust was used for her benefit. The car can’t be disputed. It’s a relatively small thing. I know the Wellesley apartment is disputed but the car is sufficient. The trust deed terms, well, the Family Court said the intention of setting up the Claymark Trust was not to provide for Mr and Mrs Clayton in the future. Well, how can that be right? There’s a muddlement here in the thinking. Part of the reason for setting up the trust for commercial reasons was to divide off land into a trust. Well, that’s one factor, but it must also be, given that the trust deed sees this for the benefit of Mr and Mrs Clayton, that it was going to be to provide for them.

My final point, Mr Carruthers seems to be suggesting that she could expect to benefit from a trust that held the family home but not a business asset. Well, why would that make any difference? The business itself was, of course, relationship property and any distinction under the Act is long gone.

Paragraph 114 of my learned friend’s submissions, he refers to the pre-nuptial settlement which we’ve just discussed, but the problem with that is that the pre- nuptial agreement did not govern interests under the trust deeds. If Mr Clayton chose to establish a trust making his wife a beneficiary, there was nothing in the section 21 agreement which stopped that and it doesn’t deal with it.

There’s nothing – even if the section 21 agreement were valid, it wouldn't preclude a section 182 application, would it?

I think Ward said it had to actually be referred to in the pre-nuptial agreement, the trust, didn't it, or it had to be very clearly linked, I think.

Do I take it that the High Court judgment in Kidd v Van den Brink has been treated to date as controlling the situation, as it were, the interpretation of the Delphic pronouncements from the Supreme Court in Ward?

It has been applied in the Family Court, Kidd has, yes. Well, no, that’s not fair because counsel are all aware of the leave application having been granted so it’s kind of up in the air a bit, but remember that was –

Mr Carruthers suggests in 114B that the wide provisions of the trust deed itself with discretionary beneficiaries should make a difference and the discretion shouldn’t be exercised. There were, of course, other beneficiaries in Ward and Mrs Clayton’s authorities is just a reference to where Ward is. Where the reference is in the evidence and the decision of Ward, it was the same kind of trust in terms of the family members being beneficiaries.

Also, the remedy sought by Mrs Clayton in regard to 182 is the same as Ward, a splitting of the trust into a his and her trust, so it protects the children’s interests in any event.

I’ve then referred to Her Honour Justice Kiefel’s decision in Spry because in that decision, as I have said, Her Honour says, well, the equivalent of 182 is the answer and she gives a strong decision in regard to the operation of that. I won’t take too much time because I’ve given you the page references on that. But Your Honour the

Chief Justice will be interested in reading that in terms of how Her Honour from the High Court interprets the equivalent provision because she talks about the purpose – I’m at page 221 of my bundle in 23 – of that provision and says it’s meant to be, to give power to the Court to deal with all property held for the use and benefit of the parties to the marriage which may represent the accumulation of their assets in the course of the marriage. It’s to ensure that previous arrangements for the property cannot continue. Since previous arrangements can’t continue, the property is applied equitably for the benefit of the parties or the children. Whether or not the settlement qualifies as an ante-nuptial or post-nuptial settlement made in relation to the marriages informed by these purposes rather than by reference to the authorities dealing with statutes employing different language and having different purposes. So she, in pages 221 and 223, says it’s intended to have wide operation. It’s held for the benefit of the parties. It’s intended to apply across all of these trust formed during the marriage. You can’t – paragraph 231, she talks about my learned friend’s submission that because there’s other beneficiaries in the trust which extend beyond the husband and wife and the children of the marriage, you can’t deny the nuptial element of the trust because in this case Dr Spry’s sisters and their issue were also in the beneficiary class. The question of the impact of any order upon those persons might be put to one side for present purposes because we’re concerned with the character of the trust and their inclusion does not deny the nuptial element. So she gives a strong judgment and in 236 she talks again about the position of the other beneficiaries of the trust shouldn’t be assumed. She said the lower Court had not assumed importance in His Honour’s reasons no doubt because of the view he took of the true nature and purpose of the trust. So she says the argument of Dr Spry in regard to the other beneficiaries cannot hold water. This is 236. “It was not doubted that the rights of third parties may be indirectly affected by orders of the Court. It has long been accepted that third party interests could be altered by Courts dealing with property, the subject of a nuptial settlement. Whether and the extent to which the Court would alter such interests might depend upon the remoteness or uncertainty of those interests. Here the interests of the other beneficiaries and the due administration of the trust were always subject to the husband’s control. The extent of that control, to the detriment of the third parties’ interests, were shown by the attempted distribution of the entire trust property to the children’s trusts.”

So you might say, well, the children, Stacey and Anna, of this couple may be better off anyway in a trust controlled by their mother.

Now, finally Mr Carruthers submits in 114D that Mrs Clayton confirmed in addressing specifically the Claymark Trust that she was aware that the purchase of land remained primarily to future-proof the mill from resource management issues and noise restriction from neighbours. Well, I have not been able to find that evidence. My instructions are that evidence wasn’t given. The reference in the footnote to the Family Court judgment does not establish that proposition.

Then, finally, Mr Carruthers talks about policy issues in paragraph 122 onwards of his submissions, and he says that the policy is that trusts can be a good thing and provide very effective framework for business to operate and for personal affairs to be arranged. He says that farmers and business owners are particularly concerned that family property built up over the years and sometimes through generations should not be lost over one generation.

Well, in my submission, there’s no real basis for those submissions. 182 is, in fact, aimed directly at unfairness at dissolution. There’s no special category under 182 for farmers and businesspeople and nor should there be.

As Your Honours will see, I’m speaking next. I’m speaking in defence of the Property (Relationships) Act. It is a piece of legislation that’s doing its job and the only reason why the case is here today is because Mrs Clayton wants more than what is relationship property and available to be divided, and the reason why Mr Clayton is opposing is not because he’s being unfair, it’s because there is no money. Now, I can take the Court to the valuations and I’m going to do that, but the starting point is the Act does its work, it has done its work in this case, we can see it’s done its work because the trusts have been set aside, the education trusts and the post-separation trusts, and we can see it’s done its work because all of the value in the marriage, which is in the operating businesses, other than the initial 500,000 is being shared.

So our submissions dated 28 August 2015 address the issue of section 44C, but in addressing section 44C what needs to be remembered is that it’s an adjustment provision and the Court has a discretion as to whether or not to use it, and the reason

why we say it shouldn’t be used, or the reasons, are, first, because the jurisdictional requirements aren’t met, and I’ll come to that, and, second, in terms of the exercise of the discretion, if the Court were to exercise the discretion in the circumstances of this case, it would result in Mr Clayton having to go to the other trustee and seeking to have the land asset sold and as I’ll take the Court to the evidence –

Well, not necessarily. I mean, the Court could just go direct to the land assets itself,

If it upholds the 44C claim, couldn’t the Court make – have direct resort –

– to make orders in relation to the capital of the Trust, only compensation orders against the other party.

I’ve passed up the – I’m sorry, I’m just getting – I’ve passed up copies of a number of the sections. Section 44C is, I think, in the submissions.

– at – as trustees of the Vaughan Trust, I think. Yes. Actually, is it? No, it must be in another one. Oh, no, it’s there. So it’s the bundle of authorities in respect of the Vaughan Road Trust, tab 1.

Mr Butler has got five copies of the Act. I make that might be quite helpful because then we’ve got them all in one place rather going backwards and forwards. Would that be helpful?

Actually, I haven’t got it with me because I had it on iPad which I left upstairs.

Section 44C would permit an order to be made against the trustees in relation to the income of the Trust.

Yes, but I’m going to address the default position where Ms Chambers has suggested the Court should make orders in relation to the power of appointment and other powers under the trust deed, but I’ll come to that.

As I say, I’m here defending the PRA, and in the course of defending it I do want to take the Court back to where we left it yesterday, and I know it was an unattractive submission but I wonder whether or not I could just work my way through it? It goes back to the Family Court judgment which is at tab 9, and beginning really at paragraph 29 in terms of the relationship property issues. So in the Family Court what happened is there was a section 21 agreement that Mrs Clayton was seeking to set aside. Your Honours have been taken to the opening submissions and closing submissions of Mr Clayton and it’s been put to Your Honours that in those submissions Mr Clayton conceded relationship property. The judgment in fact shows what in fact happened. It’s at page – paragraph 34, and it is that Mr Clayton

proposed that the following items of property be classified relationship property and

– to say that this is where the Judge started in her judgment. She looked at the section 21 agreement and at paragraph 34 referred to the proposal put forward by Mr Clayton. Now yesterday Your Honours were passed, just to repeat it, the closing, opening and closing submissions by Mr Clayton and Your Honours were asked to accept those opening and closing submissions as concessions as to relationship property. Paragraph 34 of the Family Court judgment deals with this correctly. It was a proposal that Mr Clayton put forward which, at paragraph 35, the Family Court Judge rejected, and on the basis of rejecting that proposal and setting aside the section 21 agreement, the Judge then went on to do what is, with respect, completely orthodox and correct in dealing with the Act. At paragraph 36, having set aside the section 21 agreement, the Judge, at paragraph 36, identified, which is the first step under the Act, identified the property and the property was the family home, the family chattels, and any vehicles owned by the parties, either personally – sorry, personally in the relationship. So that’s the relationship property at –

– but it’s by section – by virtue of the provisions of the Act it’s relationship property. And then at paragraph 38 the Judge went on to deal with the argument in relation to, sorry, at 37, the balance of property, and in that regard Mrs Clayton submitted to the Family Court, as she submits here, that section 8(1)(e) applies, and 8(1)(e), as we know, is the provision in relation to relationship property subject to sections 9(2), 9(2) and 9(6), 9A and 10, all property acquired by either spouse or partner after their marriage began.

So Mrs Clayton in the Family Court was arguing in relation to the balance of property and the balance of property was the shares in Clayton Holdings Limited, she was arguing that that by virtue of section 8(1)(e) was relationship property. So the Judge addressed the argument at paragraphs 38 and 39, referring to the fact that although it was conceded that Mr Clayton owned property prior to the marriage, I just inserted that word “conceded”, which he developed during the relationship, there was a time in the mid-1990s when the business ran into significant fiscal, sorry, financial difficulties, and it refers to the arrangements with the Countrywide Bank and personal

guarantees which were in jeopardy of being called up, and at paragraph 39, as I took Your Honours to yesterday, the situation was one where, according to Mrs Clayton, there was then no equity in the business. That’s how dire the circumstances were, and she said, “So any separate property,” this is with reference to the shareholding of Mr Clayton in CHL, “which he’d owned prior, was lost at that time,” and then with the restructuring of the business that occurred with the setting up with the Vaughan Road Property Trust, when the company started to become profitable, Ms Hunter argued, well, then the property was acquired again. So there was property acquired during the marriage under this argument, and the Judge said, with reference to these assets that are land and business operating assets, “Had Mr Clayton and/or his entities not owned those assets then there could not have been a restructuring of the business structure with subsequent lending by BNZ. Mr Clayton did not dispose of assets and reacquire them during the relationship. They remained in his ownership. It was the level of indebtedness that changed, resulting in a change of equity. I do not accept that an increased level of equity in relation to assets that are separate property can constitute relationship property for the purposes of section 8(1)(e).” So that was the argument in the Family Court and it was rejected.

Then the Judge turned, in accordance with the requirement under the Act, which is, first, to identify and then to classify, the Judge turned to look to see what happened to Mr Clayton’s property. She said, “The question then becomes whether Mr Clayton’s property is separate property pursuant to section 9(2) of the Act,” and set it out. And, again, this is important because it is subject to sections 8(1)(ee), section 9A(3) and section 10, and at paragraph 42 the Judge made this finding, “On the evidence put before the Court I am satisfied that all property owned by Mr Clayton has been acquired out of his separate property.”

Can I just pause there? How is that reconciled with the purchase of the father’s

Yes, the answer, and Your Honour asked me this yesterday, the answer is that the company was operating throughout the marriage. The shares in the company belong to Mr Clayton.

That must have been relationship property when he purchased them and what happened to them after that becomes – is affected by that relationship property status.

There isn’t – we actually don’t know at all how that purchase took place. We –

We know that his father had four companies and we know that those four companies were amalgamated into what became CHL but, Your Honour, I’m not sure whether it’s something that we have to worry too much about anyway.

Well, I’m worrying about it because there have been – there are some gaps in the

That is, that certain other assets got into the mix that didn’t come through the 1984 company, that didn’t originate within the 1984 company.

acquired and it’s dealt with by Mr Lyne, who is Mrs Clayton’s expert, in red.

Well, can we just – there’s no way that there was any disposition of the proceeds of separate property if the only disposition of separate property was the 1984 company being wound up, the Banksia property which became the matrimonial home and the two Vaughan Street properties which are still owned.

So where did the money come from – no, no, but she said his property can be traced both to the proceeds of disposition of separate property. Well, I haven’t seen any disposition of separate property or the proceeds thereof.

And then the income or gains gained from separate property, well, again, I’m not

Sorry, I asked that question because it’s related to Justice Young’s question.

Yes, I’m coming back to yours, Your Honour, if I may. Which is – well, one of the

659. Just at the beginning at their second paragraph, “During the period of the relationship, CHL acquired and grew a significant sawmilling, manufacturing, and sales business. In addition, significant property assets were acquired during the relationship both relating to wood processing and manufacturing business and other assets, as well.” Then on page 815, he refers there to at paragraph 71 to that first timber buying operation, Rotorua Timber Supplies, and at paragraph 72 the commencement of that business that became Claymark Industries. This included the purchase in 1991 of a sawmill out of liquidation from a Mr Aitken, and at 73 on the

purchase of the sawmill business Mr Clayton arranged for the custom cutting of the radiata pine for the forestry corporation. This business, together with his father’s business which he acquired following his father’s heart attack formed the basis of the business that now constitutes the Claymark Group.

So if I can come back to Your Honour Justice Young’s question, of the documents that are passed up they include the amendment to the Property (Relationships) Act and if I might just refer the Court to 817, the third paragraph, and I’m not bringing this to the Court’s attention because Mr Clayton deliberated avoided, but I’m just showing where corporations sit in the regime. A more effective way of avoiding the regime is not to own property. The Act applied only to assets beneficially owned by either the spouses at the time of separation, assets held in discretionary trusts, or owned by companies did not generally come within the ambit of the Act. Now, that hasn’t changed so in answer to Your Honour Justice Young it is that the item of property that had to be addressed at the end of the marriage and by the Court was the shares in Clayton Holdings Limited and Clayton Holdings Limited itself had the assets, not the parties. So that is the reason why when the value is valued they didn't value the individual businesses, they valued the shares and they valued it on the basis of capitalisation of earnings. So what was acquired during the marriage, if you like, and Your Honour has asked me was it relationship property and I’ve had to say there’s not really a tracing anywhere, what was acquired during the marriage went into Clayton Holdings Limited and it was valued at the end of the marriage and it was –

Yes, it is. But the shares were in Mr Clayton’s name so when it came on for hearing he had the shares in his name, the company owned the assets, and the way in which the Judge addressed it was the Judge addressed it at paragraph 42 saying, “Well, look, what I’m looking at here, I can see that all property owned by Mr Clayton has been acquired out of his separate property.

No, but partly, because I suspect there's a misunderstanding or a sort of non-engagement as to what it all means, but what I understood the Judge to mean is, effectively, the business assets can be looked at as, in part, separate property as to

$500,000 but everything else is relationship property. That’s my interpretation of

It is different Your Honour and it follows through from this finding at paragraph 42, which is the Judge has gone back, looked at the source of everything. As you know, counsel in this case weren't counsel in the Family Court. And says that she’s satisfied, in relation to it, that it all can be traced back to –

But she can't really have been satisfied because, if it was really an argument she’d have to go back and say, well, the Clayton Holdings was in 1991, that’s post- marriage, so all those shares in that are effect relationship property because they were acquired post-relationship. She’d have to go back and say, well who actually bought the father’s business? Mr Clayton said he did. In fact it wasn’t a company, it then went into industries, that was – wouldn’t she have to have gone through all of that in detail and, in fact, it didn't matter because all she was saying was well 500,000 was separate property and the rest is relationship property.

Well it’s not anyway different, in relation to section 9, if I can take the Court back to section 9, which is separate property, and the rules in relation to section 9, the

classification rules, are that separate property is defined and it’s at section 9(1) and (2), “Subject to sections 8(1)(ee), 9A(3), and 10, all property acquired out of separate property and the proceeds of any disposition of separate property.” Now in relation to the business, that Justice Young asked me about, the evidence is, and this is in the affidavit of Mr Clayton, at page 937-ish, 938, paragraph 23, it’s the paragraph Your Honour took me to, Justice Young.

938. It’s the last sentence that’s important. The funding would have come from the existing business and the bank.

Well it didn't come from the existing business did it? I mean whatever he says it just didn't because the existing business, and anyway that’s 1991, so it’s well past the relationship.

But say he borrowed money from the bank, doesn’t that necessarily mean that it’s

I – Your Honour, may I say, that is with respect, from my submission, a misapprehension. Can we just bring it back to something quite simple? Imagine that pre a relationship I own land. Post the relationship I want to improve that land, it’s not my family home, I want to improve it. So I go to the bank and I borrow some money and I improve the land. Now that doesn’t mean the land is relationship property. It keeps its status as separate property.

Well it may depend on what’s quite a, what I regard as the application of quite a difficult section, section 20, but here, this is a new business, the Katikati sawmilling operation. I purchase it for $365,000. I fund it from the existing business and the bank, ie, money I borrow from the bank. Now why isn't that relationship property?

Well I can, after I’ve got my land and I’ve improved it, borrowed some money to improve it, I might want to buy the next door neighbour’s piece of land.

No because I purchase it out of separate property. I borrow against my separate property and it remains separate property. That is how section 9 works.

But also you're not working for the piece of land, you're not actually running it as a business, which he was here and putting income that you otherwise would have earned back into it.

In relation to the working for it, if I, if it needs to be improved, as I say, and I borrow, and that’s how I improve it, fine. If I’m on a salary, and I apply my salary to that land, it doesn’t change the status, the underlying status of the land, what happens is the increase in value becomes available under section 9A, that is the way the –

Okay, well that’s where I suspect, at least for the moment, you and I are apart. I would have thought that if you’ve got an asset that is, in part, convertible to separate property and, in part, attributable to the application of relationship property, it is, to the extent to which it is attributable under the Act as relationship property, relationship property.

All right, well the case is Rose v Rose, which is in the bundle, she says, looking for it.

It’s the, it came in with the trustees’ submissions Your Honour. I’m just going to have a look and see where it is. I think it’s bundle of authorities, dated 26 August 2015, tab 5.

Could I say that one would have thought, seeing they're heard together, that there could be one bundle of authorities and that you could have actually sorted out the bundle.

Now Rose v Rose is the leading authority on section 9A, it’s a judgment from this Court, and paragraph 24 is where Justice Blanchard explains the way in which section 9A works. And he says, at paragraph 24, “The general purpose of the Act is to provide for the sharing of property, which either party brings into or acquires during the relationship. Property owned before the relationship is prima facie excluded from the sharing regime but can, in certain circumstances, become subject to it. Consistently with the underlying philosophy that property acquired during the relationship falls for division when the relationship ends, the Act provides for certain circumstances in which increases in the value of separate property which occurred during the relationship must be shared. Such increases in value are viewed as an independent species of property which is notionally severed from the underlying property.”

Yes, I read that, but then if you keep on reading on you get a slightly different flavour. Say, in a simple case where there are no trusts interposed, the husband has a property, the wife puts money into it, a house is built, et cetera, husband owns the house and wants to sell it, could the wife get a claim in interest in it on the basis it

was relationship property or would she be told you've only got an interest in a notional increase in property which is intangible and won't support a notice of claim?

Well, I’m saying a – not necessarily a family home because that would be relationship property anyway, but a house or some property that –

– and improving the value, but you would say that the relationship property is separate from the land itself, probably because it’s intangible, presumably wouldn’t support a notice of claim and it’s just sitting out there somewhere.

– because – no, because section 9A would be biting. I mean, this is the complete beauty of the Act. It actually extends to exactly the situation that Your Honour’s talking about. Under section – and it’s fair because the husband who originally owned the land put the house on it. That’s his separate property. The relationship starts. The contributions, if you like, to the property and contributions to the marriage partnership, and those contributions are recognised not by giving the wife a share in

the underlying separate property but by virtue of the increase in value. Now – and

– can I see from your face? And – but can I say that there’s another way of dealing with it, always has been, and it’s constructive trust, but where there’s enough relationship property –

But what I’m saying in relation to – I’m sorry, in relation to the land, it’s the contributions in relation to it, and that’s what this case was argued, as a remedial constructive trust case, but the thing is that the beauty of this Act is section 9A gives you exactly the remedy that you want.

But I don’t see that – that isn’t what was delivered. That’s where I have a problem with it. I don’t have a problem with the analysis that you’re coming up with. I just have problems with its application.

But it has been delivered, Your Honour, because Mrs Clayton shares in the increase in value of the operating entities which, I mean, have been valued with an EBITDA of

6.75 million and a multiple of 6.25, less the debt, and, as we say, this is what that amount is. There is absolutely no other property, and then you go and you look at the trusts. So that is the property. The property at date of separation was the home shared equally, the chattels shared equally, the car shared equally. The only other item of property were the shares in Clayton Holdings Limited, and by virtue of this judgment Mrs Clayton shares equally in the increase in value from the date the relationship commenced. So I’ll talk about the trusts later.

Well, it’s in terms of how you define the property. Your Honour would like to define I

The way I’m hearing Your Honour, Your Honour might like to define the property being shared as the shares themselves. The underlying property remains separate. The increase is an independent species of property which is shared equally, and it works very, very well in a situation where, for example –

But what’s wrong with just treating the shares as being part separate property and

And, in any event, wasn’t the Family Court judgment, you made that statement at 42, reacting to the submission that there was no separate property because it had already disappeared at the date of the relationship starting, or soon after? So wasn’t that the – the statement was in reaction to that submission. Now she then went on to say she was satisfied that everything grew from there and, frankly, I can’t see how she could have been satisfied of that but it doesn’t matter because she said, “Well, anything over 500,000 is relationship property anyway.”

So maybe conceptually she was wrong or maybe factually she was wrong but she got the right answer by a different route.

Can I answer the questions in this way? Section 9A is the provision and the Court, with respect, must apply the statute, and the statute doesn’t say that you share in the underlying property. It says you share in the increase in value. So that’s the first point as a jurisdictional hurdle.

Because it’s not relationship property and it’s important that we understand that because then I’m going to come to talk about section 44C.

But how can you share in the increase if you don’t share in the underlying property? If the only property is a piece of land, how can you share in the increase without sharing in the property because there’s no other property you can share in?

I see, and that’s the distinction you’re trying to make prefatory to going on to –

– it seems that I’ve laboured it but actually it’s quite a hard little sort of classification

provisions to work your way through, but, in my submission, that’s where you end up.

– where land is improved by relationship property, you would say the land is not relationship property, therefore there could be, on that – there could be no notice of claim because the wife couldn’t claim to have an interest in the land.

Yes, she has an interest. She has the interest because she has the interest in the increase in value.

But that’s not distinct from the – but you say that’s distinct from the land itself which

Well, then, how could she have a claim – an interest in that land, if it’s separate

She can only have the claim, on this argument, in relation to the increase in value.

But doesn’t the increase in value itself become relationship property? So everything except the $500,000 in this case is relationship property, isn’t it?

Yes, you’re relying on a stray comment and you need to convince us that the scheme of the Act is that there are three species of property under the Act.

Something that I find hard to, immediately to accept. So we should return to that after lunch, thank you.

So I am coming back to dealing with the issue of the independent species of property. Under the Relationship Property Act, there are two categories of property. There is separate property and there is relationship property, and in this case the shares in CHL have been found by the Family Court and agreed by the High Court to be separate property, and there’s been no appeal against that. So in terms of the way in which the scheme of the Act works, where there is separate property to which there had been contributions the legislature came up with a clever solution, how do you deal with the contributions? And the answer was that you put a price on it. The notional amount is relationship property. It’s divided by two. You put all the property together and that becomes, if you like, the judgment sum, and then you have all your items of property together and as a Judge you work out is the, if you like, imbalance to be paid and you put that in the judgment sum and you direct that that amount be paid, and if the person directed to pay doesn’t do so then you’ve got all the remedies, which include bankruptcy, and if someone’s bankrupted then obviously the OA is involved but before that you have got the party who’s entitled to say, “Well, I’ve got a claim under the PRA.” But the beauty of the way in which it’s dealt with is that it recognises that a party who has separate property is entitled to say that property came from original separate property sources and I –

“And I can dissipate that property and any increase in its value without consequence despite section 9A.”

Yes, because isn’t the point of this the dissipation of the increase in value doesn’t attract any consequence because it’s not relationship property?

Well, what about advances – I thought this was the purpose of, in relation to the way in which the trust dealt with assets, made advances and so on.

Yes but that’s not from Claymark Holdings Limited. The allegation there is that Mr Clayton personally made advances or that the Vaughan Road Property Trust made advances to Claymark Trust.

Yes, and the Vaughan Road Property – and I understood what you were saying is that it doesn’t matter because nothing is relationship property until there’s an order from the Court saying it is.

Well that’s what the, but that’s how the regime works, it’s a deferred sharing regime and that preserves, and this is another cornerstone principle, it preserves the right of the parties to deal with property so during the marriage you can deal with your separate property and you can deal with relationship property. But if you defeat the other party by doing that intentionally there’s a claim under section 44. Unintentionally, if you like, but having the effect, there’s a claim under section 44C. it all works very well.

But section 44C only applies to disposals of relationship property doesn’t it?

Well it, because it, well, can I say first of all, it hasn’t been disposed of, it’s there at the end, and it’s available to be shared. A money judgment, go to Mr Clayton say well here you are you’ve got options, you can sell the shares, the business, and pay up or you can go to the bank and raise some money. So he gets to keep what was his originally. It’s respectful of separate property entitlement.

If he disposed of any property of the quality that you’ve just described to us –

If it’s – 44C requires in terms of jurisdictional requirements that it’s relationship property. Section 44 doesn’t require that it’s relationship property.

Under 44C, no, because it’s separate property. But can I just say under section 44, yes.

Yes, but Your Honour very helpfully in Regal Castings v Lightbody [2007] NZCA 396, [2008] 2 NZLR 153 improved the test, and the test –

Well, it started off with Your Honour’s minority judgment, you’re quite right, with respect, it’s the Supreme Court –

But the truth is, I mean, it does leave a bit of a gap, the section, effectively property can be dissipated without recourse under section 44C.

But, with respect, if it’s not intentional, if it’s not intending to defeat the other party, why is that a problem? If somebody takes the relationship property and goes off to the casino and loses it all, that’s just part and parcel of the relationship. If somebody doesn’t trade well, you know, through their business, you can’t come in five years later and say, by the way, can you go back and give me that.

So the effect of what you’re saying is that property that is recognised as being relationship property by virtue of section 9A can’t, by definition, come within section 44C?

And so the consequence is that – I mean if the principle of the Act is equal sharing of what is identified to be relationship property, this is, in fact, a significant hole in it, isn’t it?

Well I’m not sure, Your Honour, whether that’s correct because I would have thought that if – can I just have a quick look at, I’ll just check to see before I answer that question. The disposition of property. If value assets in CHL that have value are taken out prior to the end of the marriage, under section 44, if there’s an intention, if there’s an intention, there would be relief. So there’s not a hole. The whole idea of section 44C is to ensure that the relationship property entitlement is not undermined to the disadvantage of one partner of the relationship –

I mean say all the shares in the operating company were put into a trust, so how is the increase in value going to be dealt with then, on your view of it? So the shares are owned by the husband.

Let’s say there’s no intention, it’s just one of these myriad of arrangements that have

Well, can I just talk about section 44, because the test in relation to section 44 is whether at the time of the disposition the person disposing had knowledge that they were exposing the other party to risk in relation to a claim, and it has to be characterised as dishonest as well, but that covers it.

But why would it – would it have been? If this occurs at a time when the marriage is strong and it is one of this sort of myriad –

– in relation to these business activities, you’re not going to be able to attack it under

– but it would have – wouldn’t it have the effect and you would say, “Well, too bad”?

No, I don’t say, “Too bad.” I say everything that you, that the Court’s putting to me as a problem, under the present legislation there’s an answer, and in relation to that –

Well, in this case there’s not a completely satisfactory answer, I have to say, be –

The answer in this case is section 182 of the Family Proceedings Act but it does –

I knew someone was going to say that, and it must, and everyone says it must and it’s in the Law Commission Report that it must, as I understand, it’s certainly Nicola Peart’s very strong submission. But that is the answer, and that’s how you get to it. But, I mean, we’re talking about, and I can understand that the Court’s concerned about this, but it hasn’t happened because Your Honour, Justice Arnold, said to me, “What would happen if they took this property and put it into a trust?” What they’re disposing of is they’re disposing of the entity that earns the money, and you can’t begin to say that that wouldn’t be something that would be seen as defeating a claim. It –

Well, that’s how it happens because you’re allowed to deal with your property. So you’re allowed to deal with your separate property, and that has to be right because otherwise how could you run your business?

So are you saying that section 44C needs to be read as any disposal of relationship property (except relationship property under section 9A)? Is that how you say we should interpret it?

No. In relation to section 44C what needs to be disposed of is the relationship property and section 9A provides –

So in disposing of the property, you’re not disposing of the increase in value of the property, is that the submission? So that’s somehow the increase in value of the property doesn’t go along with the property?

Well, where is it, if it doesn’t lie in the trust, because you’ve disposed of the whole of

the property to the trust? You must have disposed of the increase in value as well.

No, I’m not talking about the shares. I’m actually talking about the assets in the trust at the moment have been disposed of to the trust actually with a full payment, so in fact it’s not separate property. Probably by the time that happens, the separate property is the proceeds, but leaving that aside.

All right. Can I bring this back to the start? The separate property are the shares in Clayton Holdings Limited. The shares in Clayton Holdings Limited still exist. They haven’t been disposed of anywhere. Mr Clayton holds that share. He always has. The increase in value is attaching now today to the shares. If Mr Clayton doesn’t pay the judgment sum, the shares can be in bankruptcy or other enforcement action, secured and sold.

But aren’t we talking about the Claymark – I thought you were making submissions on the Claymark property assets.

Because you only make a 44C order if you’ve disposed of assets to the Trust, so I don’t quite know why we’re talking about Claymark Holdings because it’s never been disposed of to the Trust so it’s nothing to do with this.

No, that is correct, but what has happened is that during the marriage the allegation is that Mr Clayton and Vaughan Road Property Trust made dispositions to Claymark Trust and the allegation, or the claim, is that those are relationship property. So to start, in order to classify, what I’m saying to the Court is that it is the increase in value of the Clayton –

Can I just – I don’t think that is all of the allegation. If you look at – there are gifts, specific gifts to the Trust. Ms Chambers went through a whole pile of...

Yes, she did, Your Honour, and none of them are pleaded against us and none of them have been anywhere near the Courts below. There are only two pieces of quantum in the Courts below relating to Mr Clayton, and the figures are 60,635 or

365, I think, and 81,000. It’s changed. We’ve come to this Court and it’s turned into a claim for 363,000. The distributions from the Vaughan Road Property Trust weren’t even before any of the Courts below, so it’s all new, these claims.

There were dispositions with gifts, interest re-advances, Vaughan Road Property distributions and loans.

Yes, well, that’s right, that’s what’s been told to the Court today, but none of that’s been the subject of any claim, any judgment, any evidence below. The only amount, and I’ll take Your Honours to it in the judgment, the only amounts that we’re talking about, and I can actually do it right now, in relation to the Family Court judgment, and it’s under the heading of Claymark Trust, the only amounts, it’s paragraphs 69 and

70, are three gifts of 27,000, the total’s 81,000, and at 70, 60,365. So those are the

But what happened to the other dispositions? Were they just not referred to, because, I mean, there’s presumably evidence of a series of $27,000 gifts up to

Well, it was something, Your Honour, that I knew nothing about till I got the road map yesterday. So then in the High Court, Justice Hansen who dealt with this matter, a section 44C claim, which is at paragraph 144 of his judgment –

It’s page 150, Your Honour, tab 11, and it’s on page 151, paragraph 146. Those are the two dispositions, section 44C dispositions, that we were dealing with, and in this Court it’s changed in quantum so that that quantum has become 363,000 in relation to Mr Clayton and 1.6 million in relation to Vaughan Road Property Trust. So if it feels a little bit –

Well, but we were taken to the accounts. So you’re saying it’s a pleading point?

Well, no, no, but in terms of the evidence, the evidence was clearly that there had been more than three gifts of 27,000.

Well, the Judge, and my learned friend Ms Chambers said this was a primary point before the Family Court, and if you turn to the judgment –

Well can’t the Judge count or read accounts, or was that all that was put to her?

Well can I, I think that’s a fair thing to say Your Honour, with respect, but that was she, that was the order that she made. It was appealed, it was part of the appeal to the High Court, and the High Court dealt with it –

Sorry, I’m just looking at the notice of claim because you say this hasn’t been pleaded, but the pleadings, it’s not specific, it’s just about the contributions and then it’s a question of evidence for the Court to identify.

Well, Your Honour is correct, with respect, at page 2, in relation to this claim, paragraph 5 in reference to 44C.

Yes, so the Judge had to find out what relationship property was disposed of to trusts and she heard a great deal of evidence. How long did the case go on in the Family Court?

No but I’m just picking you up on your saying that this is a – well I thought you were

The claim in relation to 44C, in relation to the new claim of distributions from

The Vaughan Road Property Trust advances were dealt with in the, at least at one

Because the Courts held that the trust assets were not relationship property, they didn’t, there was no need to discuss the Vaughan Road Property Trust payments any further, was there?

I actually don’t know how it went through the Courts Your Honour I have to say but page 2 says that the claim under 44C is against Mr Clayton not Vaughan Road Property Trust. But in relation to Chief Justice’s observation that it’s evidence, in terms of the evidence this is the evidence in relation to Claymark Trust. Remember Claymark Trust is, where it’s alleged that Mr Clayton made his contribution, made his dispositions to, that’s at page 687.

This is Mr Lyne’s initial evaluation. Mr Lyne is the expert engaged by Mrs Clayton and Mr Lyne received instructions to value the property pool. So he worked his way through the property pool and he came to Claymark Trust, and that’s at page 687 through to 691, and he valued it.

And he was valuing that though, wasn’t he, as at the date – what date was he valuing that as?

Yes, so he wasn’t looking historically back as to how it had been funded, he was

Yes, but in this Court the claim that’s made, as the Chief Justice just put to me, is a claim under 44C, and it’s a matter of evidence. So I’m taking the Court to the evidence and there is none. There’s no evidence of any disposition.

What about the accounts we were taken to, were they not in front of the Family Court and is that not evidence?

Well why isn't that evidence? Because this isn't to the effect of there being dispositions of matrimonial property. This person was asked to value the assets of the trust as at a particular date and has done so.

Yes but in terms of the response that Mr Clayton was able to make, in the claim it wasn’t specified, in the evidence of the expert it wasn’t set out, there's no evidence from Mrs Clayton about this. It emerges in the course of the hearing, some accounts. And the Judge, doing the best she could with it, deals with it in her judgment, as I’ve said, at page 76. And when the matter goes onto the High Court –

Page 76 Your Honour, first volume, green volume, and it’s paragraph 69 and 70.

And when it goes onto the High Court, before Justice Rodney Hansen, he deals with it, as I’ve said, beginning at page 144, and he deals with it in terms of the same quantum. The paragraph number is 146, page 151.

Did she have to – the way she dealt with it though, did it matter to her what the dispositions had been?

Yes, because she was asked to deal with it as a section 44C disposition, and to provide compensation, a compensation order. And the order that she made, which is at paragraph 71, is that the Judge said that she was satisfied that the only claim that Mrs Clayton could have in respect to those dispositions to Claymark Trust was the debt owing by Claymark Trust to Mr Clayton or to any entities which are found by this judgment to comprise property in his hands.

But all I’m saying, that meant she didn't, it didn't matter what had been done in the

So she didn't need to – it really didn't matter if there’d been 5000 gifts earlier or a whole pile of advances earlier, the only thing that mattered, on the way the Judge dealt with it, was what was owing at the time of the hearing?

It is, because the Judge deals with the two claims against Claymark Trust. First of all section 44C which is –

Can I just go back to – I was looking through the closing submissions for the respondent in the Family Court, they were put in yesterday. At page 22 –

I don’t think – there was only one copy of that was there, did we all get...

So this is, Mrs Harley says, at paragraph 124, “Three gifts of $27,000 each were made,” and refers to the ’95, ’97, and ’98 –

Paragraph 124. And then says, “No other disposition of the Claymark Trust, whether a Re Polkinghorne Trust kind or otherwise was established by the evidence.” So that must be, that presumably is where the Judge gets her $327,000 from. What we don’t know is what Mrs Clayton’s position was in the Family Court.

But I mean, on the face of it, there were other gifts. There is ev – I mean the statement, “No other disposition to Claymark Trust was established on the evidence,” would appear to be wrong because there was evidence of other gifts.

Well, presumably that was, I mean, Your Honour’s correct because we’ve seen the

But it looks as though, in the Family Court, that there was no evidence directed to it.

So they were evidence in the case. They were probably – were they produced by your client?

They, I think they were produced by, by Mr Giesbers, Your Honour, and I don’t know who he was acting for when he produced them. Mr Carruthers says one thing and Ms Chambers says something else in my other ear, but...

I mean it does seem odd that there’s evidence of gifts which is overlooked in these

May I say this Your Honours. This case is just extremely difficult to deal with, and must have been in the Family Court, for that Family Court Judge, Judge Munro, because none of the items of property that the Judge addressed, other than the increase in value of the shares in Claymark Holdings Limited, are set out in any of the evidence to support the claim. So when the Chief Justice asks me, well the pleading that’s just a pleading for relationship property, and it is and we can’t criticise it because that’s the way it goes, it is usual to have an expert’s brief which gives you chapter and verse of what’s been claimed against you. Because once you know what’s been claimed against you, you can respond to it, and we’re in this Court now, and as I’ve told the Court we’ve not got this new allegation, a new claim that Vaughan Road Property Trust made all these distributions at –

It is a new claim Your Honour. It is a new claim Your Honour. It’s not dealt with,

But she didn’t need to deal with it because her view of it was that he just got the outstanding loan at a particular date. So if she’s wrong in that –

She didn’t make the determinations of fact and if we take a different view we have to look at the evidence.

And if Your Honour’s, I’m just moving on to the Vaughan Road Property Trust distributions, raised in this Court for the first time –

Well hang on. Do you want to say anything further on the gifts before we go to the advances?

Well in relation to the gifts the figure used in the Family Court at paragraph – it’s page 76, paragraph 69, is three gifts of 27,000, 81,000. The figure confirmed in the High Court –

At page 151, paragraph 146, the same figures. And then we go to the Court of Appeal judgment, and in the Court of Appeal at paragraph 153, sorry it’s page 255, paragraph 155, where the Court of Appeal sets out what Justice Rodney Hansen said in his judgment, and that’s at paragraph 146 I just took the Court too, and in relation to –

Certainly the dispositions were dealt with there rather than for the first time in this

I’m not suggesting the dispositions weren’t dealt with. It’s the quantum, Your Honour,

Doesn’t quantum all go back to the High Court? Are we concerned with quantum? I

Quantum goes back to the High Court in terms of the claim that is made that is left unresolved and unresolved at the moment is the overall value of

Clayton Holdings Limited. That’s the unresolved. There’s a couple of other things, there’s a –

There is a loose end here, doesn’t it have to be resolved? I mean the distributions from the Vaughan Road Property Trust were put in issue in the Court of Appeal at least.

All right. At 157, in respect of the claim under section 44C, two aspects there, interest-free loans by Mr Clayton, the next bullet, distributions from VRPT.

If you come over the page to paragraph 161, here there are two different dispositions to Claymark Trust to consider. Three gifts –

Yes. So it’s wrong? I mean, the Court of Appeal has lost track of the story at this point because they’ve got gifts in at 161 but not in at 157, and then they dismiss the VPRT claim on the basis that it wasn’t relationship property.

Your Honour, in relation to 161(a), the three gifts or distributions are the ones from

But they also with deal with, at 162 and 157(a), with distributions from the Trust, the

What happened is that after the hearing in the Court of Appeal counsel were invited to put forward more submissions about section 44C, and in the course of putting forward those submissions Ms Chambers included, instead of the original 81,000 and

60,365 from Mark Clayton to Claymark Trust, included a further about $1.6 million from Vaughan Road Property Trust. Mr Carruthers, acting for the trustees, said, “We object. It hasn’t been the subject of any finding in the Courts below. There’s been no evidence at all. If you’re going to bring this in at this stage, we’re going to have to have evidence. There has to be an evidential foundation and, in any event, we can show why this doesn’t apply.”

As it turned out, the claim was dismissed because, in the Court of Appeal, because

Well, it’s – but it’s open and if we were to conclude that it is relationship property then the premise for the Court of Appeal’s consideration, and, indeed, the High Court’s consideration, and, indeed, the Family Court’s consideration –

– which is a different basis, yes, but they all fall away and we’re left with – we would be left with having to resolve the claim on the evidence that the parties put into the Court or sending it back for reconsideration.

Can I just pick up one last point on this then I will shut up? The interest-free loans made by Mr Clayton totalling $60,000 are a date of hearing figure, aren’t they?

And it was the 298,000 figure that was obviously in issue in the Family Court, having regard to the submissions from Ms Harley that I’ve looked at a few minutes ago.

298? I’d have to say – I have to say, Your Honour, I haven’t looked at those

And I think the proposition that was advanced is that that – that in relation to that asset, the current account advance, it should be valued at the date of separation because otherwise the dissipation is all to the good for Mr Clayton.

Yes, and that, with reference to the table that Ms Chambers has put before the Court at paragraph 24, shows the Court that that middle column, “Liability to Mark Clayton,” that’s actually Mark Clayton advances, and Your Honour’s referred to the figure of

298588 which is that, the nearest balance date to separation, and the next column it’s Claymark advances and you can see that the Claymark advances have increased to 1.398 million by date of hearing, while Mr Clayton’s advances have reduced. So there’s an offsetting there. So if you have the date of hearing valuation for the Claymark advances but date of separation for Mr Clayton, you’re going to be double-counting, and that’s the reason why, and I think it’s paragraph 71 of the judgment, very sensibly the parties agreed to adopt date of hearing as a consistent date for valuation of everything.

I’m hoping so, Your Honour. That was memory. No, it’s not. It’s paragraph – it’s not

But that’s the business valuation. That’s not the valuation of current account

Yes, but in terms of the valuation, the way in which the Court, the experts addressed it, was they took date of hearing as the date to calculate the advances, and they – and you’ve got the liability, Mark Clayton advances, which the Family Court Judge says are to be taken into account, and the Claymark entities advances to be taken

into account, and you can’t have both. You can’t have, on the one hand, Claymark advances at 1.4 and Mr Clayton’s advances back at 2006. It has to be consistent, and that’s the reason why the experts did that, I submit.

But if they don’t reach the issue, what – so I’m just trying to work out, what do you

– because I will be able to find out what the current accounts were valued at and I’ll be able to let Your Honour know, but it’s just more than – it’s more than just looking at that figure there, I’m afraid.

We’re going to take an adjournment at 3.30 and sit till five. We can’t sit tomorrow.

Yes. Well, Your Honour, I think that I should tell Your Honour that I will be still going

At 5 o’clock. And I’m telling Your Honour that in circumstances where, I mean, a lot

Well, for example, the Ward v Ward that being relied on, the Rose v Rose that was being relied on, the new submissions in relation –

No, that the Court’s – the Court’s – unlike – Ms Chambers didn’t put forward another interpretation but the Court has so we’re addressing it, but I have tried to suggest to counsel that we carve up the days and –

The two days, and we’ve really only just started for Mr Clayton and the trustees.

All right, well, carry on. We’ll take the adjournment and 3.30 and we’ll consider what

I’m actually – Your Honour, I’m sorry about that. I’ve written submissions. I’m

But I actually, I got off track because I came back to answer the question about the intangible property.

I’m sure I would be happy about it actually but I’m not sure that – I mean, there’s a

Yes. Can I just say one more thing about it? Just – I don’t know whether this is helpful or not. I’m hoping that it is. If the wife was an investor in a marriage, the wife in a marriage was an investor, and she put separate property into the Stock Exchange into Kiwi Income Property Trust, for example, if her husband or partner was an accountant and he does the accounts, so he makes contributions, indirect, he can’t register a notice of claim or a caveat against the land owned by Kiwi Income Property Trust. The wife has a shareholding in the company which owns land. Any increase in value is dealt with under section 9A and that is a money judgment just the way this is, and enforced as such.

So if I may come back to the written submissions, I think in terms of, I’m hoping in relation to, at paragraph 4, I’ve already been through the question of the agreed date for valuation and I have explained, this is 4(b), the basis on which this is advanced

from Mr Clayton, that the loans were not relationship property. It follows from paragraph 42 of the Family Court judgment, that any advances that were made were from separate property but not relationship property, and that the Court was correct in the way in which it dealt with it.

In relation to the alleged distributions from Vaughan Road Property Trust, the way in which this has been put to the Court is that there was an error by the Court of Appeal in relation to quantum. The error’s not in relation to quantum, it’s in relation to what party made the distributions, because in the Family Court and the High Court that was directed to Mark Clayton. And section 44C doesn’t apply. If Vaughan Road Property Trust is set aside then all of those assets are acquired out of separate property and they keep that status. Vaughan Road Property Trust is not a partner in the relationship; these are the jurisdictional requirements for 44C. And Ms Chambers has put to the Court that it’s open to the Court to treat them as if they're relationship property and, with great respect, that would defeat the jurisdi – that would be in conflict with the jurisdictional provisions. And in terms of whether an order –

So the submission that the assets are the separate property, what does that rely on?

Oh, yes. Can you just explain to me why that is, in words, rather than relying on something else?

Well in words, it’s like this. The Judge says that all the property is held at date of hearing – at date of separation, other than the home, the chattels and cars, all of it was separate property, and the increase in value is what’s shared. The income and the –

That's fine, I just want to understand that, it’s not an extra argument in relation –

– specifically to the Vaughan Road Trust, it’s the, it’s your split between –

Thank you. So in relation to the chronology, we’ve been through the chronology and have looked to see where all the property came from and we end up, and this is come through to paragraph 17 and the Claymark Trust and why it’s set up, and it’s set out in the judgment that it’s set up for proper reasons, it was the need to separate out the land from the underlying operating, from the operating assets. And then the property is acquired, and my learned friend, Ms Chambers, took Your Honours through the acquisition of the property but, with respect to her, failed to point out that the property purchases took place between 1999 and January 2001, and over that period of time Mr Clayton’s loans, loan advances, decreased and the documents, the accounts before the Court show, that the acquisitions of property, of land, were from borrowings, not from any advance from Mr Clayton.

And if I can just leave the written submission just for one moment and say this. The way in which the case has been advanced against Mr Clayton is that the Court’s being told that over the whole of the relationship what he was doing was moving property away, from what would be a sharing regime, to look after himself, to benefit himself and just this morning the Court was told, in relation to the bank proposal that was made when the marriage came to an end, that what Mr Clayton was doing there was to sell the business and buy it back cheap, and I looked at page 1924 to see whether that’s what the proposal says.

Both? G, cream, 1924, and the paragraph is that second paragraph there, “The profiles acquisition provides an appropriate vehicle for Mark Clayton to reacquire the Claymark business and all the properties to recreate his current property pool. The acquisition process will be fully transparent and all repurchase will occur on open market. There is a degree of risk that Mark Clayton will not be able to repurchase and his current property pool, however, current market conditions are tough.” Now, nothing there about Mr Clayton selling the property and buying it back cheap, and

what I’m trying to do, Your Honours, is run this case for Mr Clayton on the basis of principle and the record and the evidence and not on the basis of prejudicial, with respect, submissions that are made about him. He is coping as 1924 shows with extremely different, difficult, market conditions, and he is doing the best he can.

Now this document’s also been relied on to show that Mr Clayton had a view about the assets and that they were worth 27 million. That’s page 1925. And, with respect, a document prepared by accountants and put before bankers in order to get some money to settle relationship property is not a means of classifying the value of the property or the nature of the property.

One would expect that he would honestly think that this was the case though, wouldn’t one, because otherwise he’s deceiving the bank when he’s asking for a loan?

So you’re allowed to lie to the bank and double your net worth when you’re trying to

What he’s doing is he’s saying to the bank that, “These are the assets I may have available to assist in order to settle with my former wife.” That’s what he’s trying to do. He’s not trying to borrow money to dissipate or hide or anything else. He’s borrowing –

No, it’s nothing to do with that. It’s one would expect, if you’re putting up a statement

of assets and positions to borrow from the bank, that you would do so truthfully.

Well, maybe the accountant can speak for it, Your Honour, but in relation to Mr Clayton he has genuinely done what he can to settle with his former wife and the issue’s going to be value, and I’ll come to value in a moment, but before I do that may I turn –

– that a lot of matters of colour have been traversed, but I think it’s not necessary for you to respond to them. Perhaps I should have intervened to stop some of those things being expressed quite in the way they were put, but you can be sure that the Court is not going to be affected by those sort of matters. We want to deal with the matter on the basis of principle and also the provisions of the Act.

And we do seem to be getting perhaps too deeply into some of the matters of background.

Well, with respect, I entirely agree but would Your Honour please let me just deal with the $5 million? It’s very simple.

It’s at page 1988. It’s a simple way of dealing with it because this is a summary of current accounts and borrowings from Mark Clayton, and Your Honours were told that $5 million was taken out at separation by Mark Clayton, and the impression that was left was clearly he was looking after himself. So in relation to the nine VRPT liabilities loaned from Mark Clayton –

1988, cream G I think. And if we follow that line along we come to 2005 and the figure is 3.1 million which is –

2005. The line VRPT liabilities. And Your Honours can see in 2007 that changes, it becomes two million 114 and the difference is 5.3 million which sits directly above, in that first line, the Clayton Holdings Limited Group in 2005. The dates don’t quite line up but there’s the figure 5.3 and it’s dealt with in the Family Court judgment at paragraph 46 – I’m sorry, 56 I think it is, page 72, there’s the figure, $5.3 million. It went on a money go round for tax purposes, it didn’t work, but the point that I’m making is that Mrs Clayton knows that that money wasn’t taken to strip assets from Vaughan Road Property Trust. It went into Clayton Holdings Limited and most of it stayed there.

Now in relation to the funding of Claymark Trust I have in the chronology for Mark Clayton I have put in the account references which are in yellow and the account references show that for each piece of, item of land that was purchased in that period of time, 1999 to January 2001, each item of land that was purchased was purchased with a matching, or nearly matching, borrowing from external funders. So it’s not the case that Mark Clayton paid for the land and that can be seen with reference to the table of my learned friend at paragraph 24, because during that period of time, 1999 to 2001, Mark Clayton’s advances went down, not up.

Now in relation to the Vaughan Road Property Trust, which comes into the frame because of the claim that they made in this Court about distributions, the property transfer is set out at paragraph 23. It needs some refinement because we know now because of the further evidence that we’ve got exactly what entity owned prior to and what the cost and where the borrowing was. It’s set out in the chronology that Mark Clayton has filed with all the references there. And what happened in relation to, I’m coming back to the judgment, I’m sorry Justice Glazebrook, is that we are relying on the fact that the source was separate and the separate property went into a trust, Vaughan Road Property Trust, and –

So it is a different argument than you said to me before? Or the same argument that you were saying before?

This relates to the distributions from the Vaughan Road Property Trust because there are two arguments. The two dispositions, one is the disposition by Mark Clayton to Claymark Trust and the second one is the disposition –

Wait, let me see, so the dispositions from him, although I don’t think it was him because I think it was a company, but the dispositions from him to the Vaughan Road Trust are separate property because 9A has this funny species of relationship property off to the side, is that...

No, no, no, Your Honour, it’s a picky little argument and I apologise for that but it’s just – it’s a classification argument, is really what it is, and that’s the reason why it’s necessary to sort of take it through in this way.

So then coming up to paragraph 25, the separation, and it’s – again, I just have to come back and say this, it’s been put again that Mr Clayton from the beginning didn’t want to share with his former wife, and I can refer to the three mediations that he attended and I can refer to his evidence, which is in orange at around about 93... Can you give me those references, please, the two references about him wanting to settle? I think I actually set it out somewhere else. It might be in his first affidavit.

Well, let’s just take it that there is evidence that he wanted to settle. That’s all you

Thank you. And when I first addressed the Court yesterday, the impression had already been created that there was $28 million worth of property and in, in complete obstruction, delay, causing difficulty, and I passed up to the Court the judgment that this all comes from and it just shows how an early judgment in the Family Court can be used to get traction in relation to this sort of allegation. It’s the judgment of Judge Adams.

It’s redressing colour, Your Honour, and it’s also dealing with the submission that is repeated against Mark Clayton that he didn’t give proper discovery and that the Court, if it’s going to make findings, is entitled to make findings adverse to him on the basis the allegation is that the proper documents weren’t provided, and in –

Well, we’re only going to make – we’re only going to look at the documents we’ve got in front of us, aren’t we?

Well, so – well, we can't make a finding in respect of how that was financed because

And the submission goes on, and it’s in the written submissions, you can make findings adverse because those accounts aren’t there. Well, 1994 accounts to 1999, no obligation to hold them. At no – nothing that shows whether even ever existed, and it’s this constant submission made is that in some way Mr Clayton failed to meet his discovery obligations. There’s about five pages of index to the reports of the experts showing every document they had for all of these entities and in relation to Mr Lyne, the expert acting for Mrs Clayton, he also had, he was given open door access to the chairman of Claymark, Mr Giesbers, and to Mr Hancock, the manager, so he could get anything that he needed to –

Ms McCartney, we are interested in the points on which you gave leave. Unless this judgment of Judge Adams touches on them –

Thank you, Your Honour, but he has been painted in the Courts below constantly, and it – I’m not expecting this Court to be able to redress it but I do, in making my submissions, want to make it clear that he has complied, and his first affidavit, which is dated – well, it was one of the first affidavits. I’m not going to take the Court to it other than to find it myself, dated 10 March 2009 at page 933, begins with saying, “I am mindful of the order that’s been made by Judge Adams and I am responding to it, chapter and verse.”

Can I just, in defiance of what you’ve just suggested, take you to one little section in this judgment of Judge Adams where he says that, “Mr Clayton was to precisely identify the assets he owned at the commencement of the de facto relationship and prove how and to what extent they could be traced into existing assets. To the extent he does not do so, assets will be deemed not to have been acquired out of separate property.”

If that’s a valid order, it sort of rather leaves the risks of the uncertainties about what

I take – I’m referring to the uncertainties surrounding the items referred to at

If there were uncertainties, Your Honour, and if we – as we see from paragraph 42 of the judgment of the Family Court, the Family Court Judge did not consider there were any.

Well, she didn’t need to because on her view it didn’t matter if they all came from relationship property or none of them did because her view is the only thing left were the loans and so what did it matter what was in the Trust?

Well, it wasn’t the Trust. It was in relation to Clayton Holdings Limited and what the

– what did it matter because everything but 500,000, which was a sum agreed between the parties, was going to be relationship property in relation to anything that was not in trusts.

In order to get there, the Judge had to be able to trace back, which is what she did.

– on the fact that there’s no appeal and I’m relying on the fact that in the High Court Justice Hansen made the same finding that the original property is separate property and it’s the increase in value and there’s been no appeal. And can I say, Justice Young, in response, that in the event that that is how Judge Adams’ judgment gets applied it would be extremely unfair because Mr Clayton believed he had responded to it, and he goes and he not only responds in his affidavit, he gives every document that it is asked of him to the other side. He pays the other side’s accountant to do the valuation and then the valuer comes to Court and said, “Well, I didn’t actually go back and trace the source. I just valued the pool of property,” and when he comes to Court he’s told, “Well, look, we’ve got a little, you know, hole here,

so who are we going to blame for that? We’ll blame Mr Clayton. We’ll make him pay some more money.”

But the next issue which I’m coming to, Your Honours, which is really important, in relation to section 44C, is the jurisdictional requirements and whether those jurisdictional requirements are met with, in relation to the first disposition, the ones from Mr Clayton, the loans, and then the second, distributions from VRPT, and in looking at the jurisdictional requirements and whether or not they’re met, and then looking at the discretion, and in order to address the discretion the submission that I’m making is that this is a relationship property division. The question is, is it a just division, and in order to determine whether it’s a just division 44C(4), I think it’s (b), says one of the factors that needs to be taken into account is the value of the relationship property.

Is that a submission that you can’t exercise a section 44C jurisdiction until the

The relationship property has been valued to an extent but it’s never been quantified.

The end point of my submission, Your Honour, is that if we go and we look at the values, valuations, of the two experts and see where we’ve come to in terms of the Court of Appeal’s finding of 6.7 million times the multiple of 6.25 less the debt, we’re at the figure of around about between 10 and $11 million in terms of that main part of relationship property, and then you add on the Trusts and you come up to a figure of around about $14 million. Now the main part of that is Clayton Holdings Limited increase in value, and the point that I’m making in relation to these advances in distributions is that they’ve all been applied, not – I can’t say all – they have been applied directly or indirectly to Clayton Holdings Limited and Mrs Clayton, in getting the increase in value, gets value for what it is that has been distributed.

Well, that seems – it may well be a fair point and in any reconsideration there has to

Yes, and that is the concern. There’s a second concern, if I may say so just before we adjourn. Is that all right, Your Honour? The second concern is this, the land that we’re talking about in Vaughan Road Property Trust and in Claymark Trust is the land that sits under the sawmill and under the kiln drying operation. It’s been given a number by the valuers, but, you know, the truth is that there’s no market for it other than the person who’s operating the sawmill or the kiln drying operation. Mr Clayton’s been before the Bankruptcy Court twice by Mrs Clayton enforcing orders, and the Bankruptcy Court, in the judgment of Associate Judge Matthews, the submission on behalf of Mrs Clayton was that all the experts in the Family Court said that the Clayton Holdings Limited shares had negative equity, and it’s recorded in the judgment. That was, with respect, a misrepresentation because Mr Lyne’s always said it’s worth 17.5 million.

In terms of value, what Mr Clayton ends up with is he ends up with his operating business, timber processing. Alan Dent tells us how difficult the circumstances are around that we know he’s got $37 million worth of debt in the business. He’s personally guaranteed it. There is nothing in this land that can be sold without a cascade effect on the business, because if the land’s sold you don’t have the security in terms of your ability to operate from there. You don’t have the lease. You don’t have the rent. And Alan Dent put it very well when he said, you know, this is a real concern. In these sort of financial conditions, what happens if he’s not able to meet his obligations for the $37 million debt and has to, as a result, the receivers are put in? If the receivers are put in, the value of that shareholding goes straight down, the land will be sold, it will be realised at well below market value. Mr Clayton will be called on his personal guarantee. He will be bankrupted. And where does that leave everybody?

What are you asking us to do? Not to apply the law because he’s facing hard times?

No. I’m saying in terms of the exercise of the discretion under section 44C it’s

necessary to take into account that if the Court makes further orders, compensatory

orders against Mr Clayton, on top of the at least $7 million that he’s going to have to find, that what that does is it brings into, well, jeopardises, so, I mean, just completely jeopardises the viability of the business and affects the value of his share of relationship property. So I come back to where we need to start from, a just division.

Yes, thank you. All right, we’ll take the adjournment. Ms McCartney, by my calculation, which could well be astray, you are only 15 minutes short of the time that Ms Chambers took for this appeal, so in terms of equality of opportunity I think, you know, I really would like an indication from you when we resume how much longer you need to be. Thank you.

The rest are set out in the submissions. The first point, and it starts in the written submission at page 13, paragraph 50, just the jurisdictional requirements that you’re all aware of, and the next paragraph is the loans, and may I refer the Court to orange. The Court doesn’t need to go there, I’m just giving the reference. Volume D, orange, 1094, lines 17 through to 34, where Mr Clayton was cross-examined on the advances and it was in relation to three gifts of 27,000 only.

So in relation to that, the submissions comes through advancing that there was no error as to quantum at date of – and date of valuation and that Mrs Clayton’s claims or rights have not been defeated.

But in relation, this is at page 18, in relation to Nation v Nation and Rabson v Gallagher [2011] NZCA 459, [2011] NZFLR 1040, at paragraph 68, the submissions set out the main distinguishing feature here which is that the general purpose advances cannot be viewed in the same way as disposing of an appreciating assets that’s already established relationship property in return for a static debt or something, or something of lesser value.

And then on page 20, under, or above paragraph 73, is the submission in relation to the exercise of the discretion and the submission made is it’s not a case where the Court should make an order, and the reasoning is set out.

And at paragraph 77, that is the response to the submission by Ms Chambers that Mr Clayton is synonymous with Claymark Trust and with reference to the clauses in the trust deed I’m just getting now the clauses that are relied on to show that he had control of the Trust in order to show the Court, with reference to the Butterworths Trust Deed that was passed up to Your Honours earlier, that those clauses are normal clauses in a trust deed and to make the submission in relation to the application in practice of the clauses and why they’re there. There’s nothing unusual or wicked or out of the ordinary about a trustee, sorry, a settlor including those sorts of trusts in a trust deed, and in this regard I am, with respect, very concerned that the Court does hear this submission. I’m grateful that I’m in a position to make this submission because these sorts of clauses, as I’ve submitted, are just very normal, not just in a business trust but in any family trust, and just as an example, in terms of self benefit, if we consider a situation where, say, two grandparents put their home

into a trust and they set up the trust so the final beneficiaries are their grandchildren, and then they stay living in the trust, in the home, but they don’t pay rent, now that’s a benefit and they are entitled to have that benefit, but if it wasn’t provided for in the trust deed they could be in breach of the established fiduciary duties as we know them. So a settlor can carve out, and, and, the type of fiduciary duties that are going to continue to apply, and fundamentally there remains one core obligation, Armitage v Nurse [1998] Ch 241, and it’s the obligation of accountability. So the settlor can carve out self benefit, dealing with themselves, for example, if they were a director of the company that’s renting the land that’s held in trust or if they’re the owner of the orchard that’s got the fruit that the – they’re the director of the company, they want to buy it, these are things that under the laws of equity you’re not allowed to do but you are allowed to, can I use the word “moderate” or “carve out” those particular, you know, very austere application.

Well, this is the point, you can’t, because if you did that there wouldn’t be a trust in

What the Court would do, Your Honours, and this is what happened in Armitage v Nurse where the clause was an exemption of liability clause and I think it was Lord Justice Millett, that that’s who it then was, was, had to look at it and say, “Well, what do we do about the fact that this exemption and liability clause has gone too far?” “Or has it,” was the question really, and I’m going to say that I think the answer was, no, it hadn’t gone too far. But let’s assume it had. It’s a valid trust, settlor intention is established, all the ingredients of a trust, been operating for a long time, and suddenly somebody says, “Look, there’s this exemption of liability clause in it. What are we going to do about that? Is the Court of equity going to set aside the whole of the Trust or is the Court of equity going to sever that clause?” And the

answer is always it just takes out the clause because you’ve got to have your rump, your core obligations. So once we establish that there’s an intention to set up a valid trust and there’s final beneficiaries to whom you owe fiduciary duties, you will, no matter what the trust deed says, in terms of self benefit or dealing, it will be interpreted on the basis that there is a fiduciary duty and if the trustee is acting in a way that exceeds and breaches the fiduciary duty, the Court of equity, as I’ve said, will either sever that clause or remove the trustee, but the benefit –

– because it’s got a broader combination of things than the Claymark one, I mean, how would the Court approach the situation where if it considered that when you took a series of provisions in combination, they really removed the heart of the Trust obligation? You’re saying, well, the Court would have to, what, sever enough so that it was left with what looked like a trust? Which ones would it choose?

Well, in relation to all those clauses, all the provisions, they’re provisions that are quite standard in family trusts and the Court will see it when the Court goes through the Butterworths’ precedent.

– it doesn’t have the self-dealing one. Specifically provides that if the trustee is a beneficiary he or she is not to participate in decisions about him or her as a beneficiary. So there are quite significant differences between that sample and the VRPT one.

I thought when I read it the only one was the one that relates to the sole trustee and –

– and when I was reading it, I was reading it as a standard family trust where you’d

Well, you may be right but I thought it clearly didn’t cover the self-dealing that the

But does it actually matter though because isn’t the real argument whether you treat those sort of rights that you have in the Trust as relationship property so that effectively the Trust assets become available, at least either through 44C or directly as relationship property? So there might be perfectly standard clauses and perfectly all right, it’s just the question is what the effect of those clauses under the Relationship Property Act. Now, I expressed some surprise yesterday at some of the clauses in the Vaughan Property Trust and that’s because I don’t think that’s a very

standard trust. I do think that the Claymark Trust is much more standard in terms of the type of provisions it has and that has been acknowledged as being in a different category, hasn’t it?

The way in which 44C is dealt with is in terms of the jurisdictional requirements and Ms Chambers has put it on the basis that Mrs Clayton has missed out, she’ll miss out, and she –

– and – which was set up during the marriage so it’s just an AT ordinary, just an ordinary AT as I understand it because it was set up during the marriage and, not only that, there were a whole pile of assets in the form of interest-free loans and gifts that were applied to it. So relationship property has gone to support that Trust.

And the submission that we’ve made in response to that is the advances, in relation to the advances, they’re from Mark Clayton, separate property, not relationship property, and that’s the end of that.

I’m going to irritate Your Honour by answering that with reference to section, sorry,

Well, it just – I really do have difficulty in terms of advances which are money, fungible –

– suddenly keeping its character a separate property because of paragraph 42 –

But then you go on to section – I’ll just finish this quickly – paragraphs 65 and 66, the Judge under section 9A has the option. It can be the increase in value of the property or the income or gains that are treated as relationship property. The Judge elected to treat the increase in value as relationship property. The underlying property, the shares themselves, the income and gains from them were Mark Clayton’s, and we know that he didn’t have salary that was available to him. It went to the family and it went back into the business, increasing the value of it, and that’s how he got caught, that’s how it was all caught under section 9A.

No, no, I’m not. I’m saying that that was what the Family Court Judge found. That went back in and that was the relationship property that was applied. So – but the income and gains from separate property is available to Mark Clayton to make the advances. He made the advances to Claymark Trust. And just before I leave this can I also add that in relation to Claymark Trust there’s genuine reason behind that, I mean, I’ve said it a number of times, and Vaughan Road Property Trust. There’s genuine, bona fide, good, business sense behind that and there’s genuine, bona fide reasons for it retaining the Trust character.

The next point, it’s on page 22, and this is the argument in relation to the distributions from Vaughan Road Property Trust to Claymark Trust and it’s advanced on three separate scenarios. The first one is if Vaughan Road Property Trust is a trust, is set aside as a sham or not a valid trust, the argument is that it becomes relationship property. The answer is if it’s set aside then the assets that belong to Vaughan Road Property Trust, if transferred from third parties and from a separate source, will be separate property. If it can be shown that they’re transferred from relationship property, the Court might take another view, but the big answer here is in relation to

10-24 Vaughan Road. The parcels of land that came from the father and from Mr Clayton himself prior to the relationship are separate property and they have the big value. I think they’re worth about $4 million or some $5 million maybe. That’s where the value lies in this Trust.

That was separate property and then there was the one that became the matrimonial property, the matrimonial home.

That’s right, and then there were the sections his father’s – in the father’s business

Yes, and they went into the business, and I’m coming back to it again, and the shares in the business are separate property. So that’s all the separate property source.

So everything’s separate property, in your view, absolutely every asset that’s ever been acquired during the marriage is separate property? It’s only the increase in value which is some species of air money judgement that becomes relationship property, so therefore nothing actually came out of relationship property ever? And why did the salary become relationship property then?

But on your analysis, or is that just because it’s personal exertion during the

I understand that the Court doesn’t like the argument, what I’m trying to say in terms

– because it might be that you’re really pushing a barrow uphill, so if there is another

I’m talking about the outcome. I’m talking about the just division. In terms of the outcome, the Act has worked. What has been found to be separate property has increased in value by about $7 million.

But nobody really is arguing against the concept of separate property. No one is arguing against the concept of relationship property. The question is how it’s classified in this particular case. So of course the Act works, but partly we’re being asked how it works in this particular situation.

Well, my position, our position is we go back to the jurisdiction. The jurisdiction is section 9A. It tells us how it works, and 9A says it is the increase in value which is the relationship property.

I know, I know, but we come back to it, I’m sorry, Your Honour. I’m not trying to be

So any asset that was owned pre-marriage, its increase in value is separate property?

She says it’s an intangible item of relationship property but disconnected from the property itself.

And this may not help, and it may be the opposite, but if we – this was a long marriage of 20 years so Mrs Clayton gets half. Remember in Rose v Rose Mrs Rose got 40%, and in a short marriage, let’s just assume five years, where the property had been there for many years. The people might be in their mid-fifties or sixties when they get married. It’s a short marriage, five years, so there’s been some contribution but not a lot, but it qualifies. You can’t say you get half of the separate property. That’s the beauty of the Act. It preserves the separate property but recognises the contributions during the marriage.

Page 23, the second scenario is if the Vaughan Road Property Trust is a valid trust, but this Court upholds the finding in relation to power of appointment. The Court’s asked to treat the disposition as relationship property and the submission made is, well, it’s not relationship – the distributions from the Vaughan Road Property Trust are not relationship property and we rely on the judgment of the Court of Appeal.

86, it’s not a disposition that’s been made by one of the partner’s of the relationship. It’s been made by the trustees of the Vaughan Road Property Trust.

And 87, Mrs Clayton’s position hasn’t been defeated by the disposition, because if it’s not relationship property you’re not taking that money out of the pool.

And then, finally, this is where I ended up before the luncheon adjournment, it’s this question of the way in which we move forward to get a just division and what Ms Chambers asks is that the Court asks counsel to file memoranda to deal with the issue of what quantum’s going to be, and at 89A the submission we make is the last thing these parties need is another dispute over quantum. We have quantum. It’s in

– I’ve adopted it from the valuation of Mrs Clayton’s expert, Mr Lyne. At date of hearing the net equity in this Trust was 673,000. Mrs Clayton’s claiming half of that,

336,500, and she says, “Take off from that the loan advances that Mr Clayton, that I’m entitled to,” and the figure, it’s the top of page 25, is somewhere between 150 – so I’ll call it 155,000 and 306,000. And you’ll see the submission that we make next. It’s just not the economic of the claim that are negligible, nearly negative, it, it’s the costs, it’s the delay, it’s the distress, it’s the extremely detrimental effect this is having on Claymark’s business over the intervening period.

And at B, just again resubmitting Mr Clayton put the income in gains. He didn’t take them and throw them away. He put them back into the operating business. The operating business increased in value that’s going to be shared. By the division, Mr Clayton takes the risk of being able to repay the $37 million debt associated with the business. He takes the risk that the business will remain viable.

And at D, Mrs Clayton’s already had the benefit of distributions. They come from rent of the properties owned by VRPT. The rent’s paid by Claymark operating business. The provision of that rent, the scheme, allows the properties to support the business and it’s allowed the Claymark business to grow, and that’s where the share comes in.

The discretion, this is at E, is to be exercised on the basis of an overall just division. It’s not difficult, I submit, to accept that this ongoing litigation is affecting Claymark business. I rely on section 1N(d), the principle of the cheap, simple and swift resolution. This litigation has been going on since 2008 and while Mr Clayton gets blamed for it, in this Court the appeals substantively are Mrs Clayton’s appeals. Mr Clayton wants the opportunity to settle.

And at F, relevant to the exercise of the discretion is the interests of the children of the marriage. They are adults now. They weren’t at the time these people separated. They were 12 and 14. Mrs Clayton acknowledges it’s in their interests that the business, Mr Clayton’s able to retain a viable business.

And just the last – there are two more things I’d like to do. The last thing, Justice Arnold, in relation to the Claymark Trust and those advances were they by Mrs Clayton, M A Clayton? They’re both M A Claytons and I think the answers is at page 1852 –

– which shows us – I’m hoping that that’s yellow, I’m sorry. I’m sorry, I’ve got the wrong number. It’s – I’m sorry, I can get the reference but at some stage in those Claymark Trusts they stop referring to the advances being “M A Clayton” and refer to it as “settlor”, “advance from settlor”, which pegs it to Mr Clayton.

Well, no, because the M Clayton one disappears in that year, so what you really need to know is what happened in the earlier years, and those, we don’t have the accounts for those earlier years.

Can you – somewhere you refer in your submissions to Mrs Clayton’s entitlement under the Court of Appeal judgment. What’s the – of around six-odd million dollars. Where’s that, what’s the calculation that that’s based on? Does that appear anywhere?

The calculation is based on – it’s the trustee’s submissions, Your Honour, and the calculation is based on, because it hasn’t been quantified, so as the Court read it’s not less than, and the calculation is based on – I’m hoping I can do this from page 804 of red volume C. It’s the trustee’s submissions.

56, Your Honour. It’s on page 12. So in relation to the schedule that’s shown there, the Claymark shares are shown about half way down, and the value of the Claymark shares show the difference between the parties still and their experts but it applies the Court of Appeal’s finding of 6.75 million and the multiple of 6.25 and it takes off the debt and some other adjustments, and that way we’re able to get to, after distributions to date, the second, the last entry before the balance to distribute. We’re able to get a balance to distribute the range between the parties.

And the range between the columns depends on whether Vaughan Road Property Trust is in or out. So the range is between 6.598 million and 11.577 million, and that main difference as is set out in the next sentence is that the Court of Appeal –

No, the Lyne column, the Lyne column is, the column to look at is the 11 million 577. Mr Lyne –

The first column, I’m sorry. I think there’s a bit of confusion there. You can see in relation to both he’s got Vaughan Road Property Trust in for both of them. If Vaughan Road Property Trust were to come out from his line, that, from his column, that 11.5 million reduces by that amount.

But the first column is just the way in which the table’s been prepared. The first column I think can be ignored. It’s just some adjustments that were made probably for the judgment of the Court of Appeal, but Mr Lyne has – Mr Lyne needs to have taken out of his column, Your Honour, Justice Glazebrook, is correct, the above, it’s paragraph 47, the above table does not show VRPT out of Mr Lyne’s calculation but VRP –

I don’t really understand the Dent in and out. It’s only 1 million-odd difference.

No, it’s just I was just trying to – it’s really a response to my question. I’m just

Yes, well, that’s – and it’s advanced on the basis that it is not less than for a share. Now, Your Honours, the only thing that I want to be able to address, and I haven’t done it, is the Claymark Trust with reference to those particular clauses. I haven’t been able to pull out the particular clauses but can I address the clauses generally as to the way in which – as to in practice the application of them, and the Claymark Trust deed is at yellow 1186, and if I may start with reference to page 1189, clause 5.1, the clause in relation to the discretion of the trustees, the ability to pay or reply to maintenance, education, advancement and so forth, and they may pay out the capital of the trust fund. That’s clause 8, and this clause just generally deals with the ability of a trustee to distribute capital before vesting day. It’s standard in trust deeds. I think Your Honours will find it’s in clause 6 of the trust deed that’s been passed out, and it allows trustees to distribute capital with such distribution, would it allow the trustees to fulfil the Trust’s objectives, and a good

example is if there was a change of tax laws, for example, the introduction of a capital gains tax, there might be a need to vest the Trust asset, so it would be available to the trustee to pay it out because by paying it out you get it out of the Trust before the capital gains tax is introduced.

The next clause in relation to the Trust, the Claymark Trust, is clause 9 dealing with final distribution and the precedent has at 11.2 it’s not the same as but it’s equivalent to the precedent at 11.2(a) and (b), and this, this is typical in family and business trusts as the precedent shows. As with all trustee’s powers, it has to be exercised reasonably and consistently with fiduciary duties. Its presence does not mean there’s no trust at all.

And then in relation to, going over the page, 1192, resettlement of a trust fund, it’s found in the precedent at clause 7. It’s a standard clause in every modern trust fund. It would be highly unusual if a clause of this type was not in the modern family or business trust. There are just numerous reasons why a trustee may need to resettle and in the relationship property context, in settlements of relationship property where trust property is held in trust, it’s very usual to utilise the resettlement clause to resettle the trust into either two trusts or a new trust and retain the last trust, and that is standard. There’s a need for it applying to a business trust as much as a family trust. If a business trust had assets of shares in an operating company and also land, what may be required is you separate out the land for reason of creditor protection or capital raising, or even if you’re in a situation where there was some animosity between the beneficiaries. Here’s a way of dividing it up.

The next clause is clause 13, the – sorry, it’s clause 14, the power of – sorry, clause 13, the exclusion of a discretionary beneficiary. This is the same as the power to appoint and remove beneficiaries. It doesn’t give a power to remove final beneficiaries. The power of appointment and removal of discretionary beneficiaries still leaves in this trust deed the final beneficiaries and the fiduciary duties are owed to the final beneficiaries.

And then in relation to I think it’s – I’m looking for “conflicts of interest” in this trust deed. I can’t find it. I did notice that it was in the precedent at 14.1, and what that clause does is that, as I’ve said, if you’ve got the orchard that’s owned by the company and you’re a director in the company and you want to provide land that you own to the orchard to operate, you’re allowed to do it. You aren’t under strict laws of equity but you are in terms of the carving out of the fiduciary duties. What it means is

that the trustee can act and participate without any default, and there’s the yardstick that’s applied to it and it’s the yardstick of reasonableness, and the two authorities are Craddock v Crowhen, Craddock, as in Richard Craddock, although of course it wasn’t Richard Craddock, v Crowhen C-R-O-W-H-E-N, the reference is (1995) 1 NZSC 40,331 – it’s the Supreme Court. It’s the judgment of Tipping J,

All right, so Your Honour, in terms of the standard of reasonableness, I mean, trustees can’t behave stupidly and irrationally. They can’t do stupid – they can’t think that they can go and do something completely irrational and unreasonable and outside the trust powers and not be dealt with, and the other authority is Blair v Vallely, V-A-L-L-E-L-Y, and the citation is 1999 1 NZTR 9-002, Justice Wild.

In relation to just the last thing, self-benefit, it’s not in this Claymark Trust deed. It is in the precedent at clause 14.1(e). That allows a trustee who is also a beneficiary to exercise any power or discretion in his or her favour. There’s several circumstances where that might occur. If the trustees of a family trust own the family home, and I’ve given the example of the grandchildren, you must be able to have some benefit out of

New Zealand Supreme Court Transcripts

Clayton v Clayton [2015] NZSCTrans 21; [2015] NZSC Trans 21 (1 September 2015)