This article originally appeared in LawNews (ADLS) and is here with permission.
By Anthony Grant
In the Webb In a ruling last year, the Privy Council ruled that a man’s powers in a trust were “so broad that in equity he can be considered to have rights which amounted to property.”
The committee said the man had powers to be the sole beneficiary of the trust. It was not legal and the “trust” was not a trust at all. His property was to be treated like his property.
Downs J’s decision in Legler vs. Formannoij  NZHC 1271 suggests that there may be a way around the Webb decision. This involves having recourse to a single trust company of which a beneficiary is the sole administrator.
In the Light decision, a woman who was an existing trustee appointed a trust company of which she was the sole director to be the sole trustee of the trust and this structure was approved by the court.
The trust deed expressly excluded the requirement that there be an independent trustee if the sole trustee of the trust was a corporation.
Approximately four months after the appointment of the trust company, he deleted various beneficiaries and distributed all the assets of the trust to the administrator of the trust company in his capacity as beneficiary.
The woman could take all the assets of the trust by resigning her personal guardianship and appointing a trust company of which she was the sole administrator, then dividing the assets.
Some disappointed beneficiaries initiated proceedings in which they claimed that the woman’s actions constituted a fraud against a power. This request was rejected.
The most important clause of the trust deed that led to this decision was as follows:
- “It is expressly stated that a corporate trustee may exercise all of the powers and discretion conferred on that trustee … notwithstanding such exercise may in any way directly or indirectly benefit any beneficiary who has an interest (conditional or other) in this trustee, whether as a director, officer, shareholder or otherwise.
The clause was intended to expressly authorize a beneficiary to be the sole director of a trust company.
Disappointed beneficiaries also claimed that the woman had committed fraud on an authority by appointing the trustee of the company for the purpose of profiting from it. This argument failed on the facts. The judge was convinced that the woman “wanted to act legally and acted on legal advice”. She “was a careful and impartial witness. She impressed as sincere.  He said: “I am not persuaded [she] appointed [the corporate trustee] for his benefit or that it was one of his objectives in appointing this trustee. She had been “informed of her fiduciary obligations and requested relevant information for their discharge”. 
Downs J was influenced by the unanimous decision of the High Court of Australia in Montevento Holdings Pty Limited v Scaffidi  HCA 48.
The trust deed in this case provided that “[i]f… any individual who appoints is a beneficiary, this individual is not eligible to be appointed trustee ”.
A corporate trustee was appointed sole trustee of the trust and a beneficiary was the sole director and shareholder.
The trial judge said the settlement act “makes a clear distinction between individuals and companies [and] recognizes that a corporation may be a trustee… and contains no actual or implied prohibition on a corporation, even if controlled by a beneficiary, from being such a trustee. Since the company is distinctly and legally distinct from the individual, I do not consider that the prohibition in the Settlement Deed prohibiting an individual beneficiary from being a trustee prohibits the appointment of [the corporate trustee]… ” 
The judge also concluded “that there was no evidence to conclude that [the corporate trustee] jeopardize the welfare of the trust fund or the interests of the beneficiaries ”. If the trustee has done so, “there are many remedies available to any aggrieved beneficiary to challenge or review the actions of the trustee.” 
Many people who are familiar with New Zealand legal costs and the years that it may take to resolve such a dispute would disagree with this reasoning.
The lesson to be learned from this case is simple. With the increasing difficulty in recruiting suitable people to act as trustees, it is likely that the use of corporate trustees when a family member is the sole administrator will become a common feature of trusts in New Zealand. because the prospect of the sole administrator / beneficiary being able to have full access to the assets of the trust is very appealing.
Some people may be reluctant to rely on a decision of a High Court judge and prefer to wait until the reasoning has been challenged in a higher court. However, the fact that Judge Downs relied on a unanimous decision of the High Court of Australia is significant.
A New Zealand higher court will hesitate to say that the reasoning of five judges in Australia’s highest court was fundamentally flawed and flawed, given Australia’s rich tradition of jurisdiction over trust and fairness laws.
Anthony Grant is an Auckland lawyer specializing in trust and estate law. This article originally appeared in LawNews (ADLS) and is here with permission.