How the issues in Bell v Sutton played out

In LawNews issues 10 and 12 Anthony Grant comments on Bell v Sutton [2017] NZFLR 779. The case concerned the granting of an occupation order in favour of a non-beneficiary under the Property (Relationships) Act 1976.

I appeared as counsel for Bell in the Family Court and on appeal. Anthony Grant raises two interesting points: the relevance of fiduciary duties in such a case and the potential use of a contracting-out agreement to prevent a claim for an occupation order.

The Family Court decision in Bell v Sutton was essentially interlocutory in nature, given the remedies sought by Bell. She succeeded in sustaining a notice of claim against a trust-owned property and in being granted temporary occupation of that property.

Sutton appealed on both jurisdictional and discretionary grounds. Bell cross-appealed for an extension of the occupation order. Sutton later abandoned his appeal. Therefore, the High Court’s decision was confined to the discretion to extend the occupation order.

Section 27 of the Act gives the court jurisdiction to grant excusive possession or use to one of the spouses or partners of the family home or any other premises forming part of the relationship property. However, where a property is owned by a trust the court needs to ensure it has jurisdiction to make an order.

In the Family Court Bell argued the court had jurisdiction on the basis of Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 2 – namely, the powers vested in Sutton consisted of a property interest as defined s 2 of the Act and relationship property as defined in s 8 of the Act.

Bell relied on a construction of various clauses to establish Sutton, “as sole corporate trustee, could appoint himself as a final beneficiary bringing forward the vesting day, advance trust capital to himself, resettle the trust assets for his own benefit, benefit himself and appoint and remove beneficiaries”.

Anthony Grant rightly queries whether such a construction would constitute a breach of Sutton’s fiduciary duties.

This argument was subject to close analysis in Goldie v Campbell [2017] NZHC 1692. This was a reserved decision of Moore J, delivered days after the Family Court decision in Bell v Sutton.

In Goldie the court found “if the appellant was to appoint a sole corporate trustee under his control so he could procure the exercise of trustee powers or discretion in his favour, then…that would be a

clandestine excessive execution because it would appear regular on its face but in reality would be undertaken for purpose not within the donor’s mandate”.

In the writer’s opinion, the decision in Goldie can possibly be distinguished in two respects. First, in terms of construction and interpretation of the relevant trust deed. This is labour intensive and illustrates the case-by-case nature of this area of law. For example, the Family Court’s decision in Goldie, upheld on appeal, turned (in part) on the interpretation of the word “such” in the clause ‘power to appoint and remove beneficiaries’.

Second, the applicability, or not, of the fraud on a power doctrine. In Goldie the court concluded “that appointing a sole corporate trustee under the control of Mr Campbell would be an improper use of the power of appointment and removal”.

But, the court also observed, “the fetters constraining Mr Campbell are derived largely from the no self-benefit clause. Without this clause, it would be arguable the powers he enjoys under the deed are sufficiently similar to that in Clayton v Clayton that they could constitute property under the PRA”.

The argument for Bell was that Sutton as a settlor could benefit himself under the terms of the deed.

Another potential jurisdictional hurdle for an applicant is the wording of s 27. The order is the right personally to occupy the family home or any other premises forming part of the relationship property.

Arguably, a trust-owned property is neither the family home nor premises forming part of the relationship property. After all, Clayton confirms the value of the trust powers is equal to the value of the net assets of the trust in question. Not that trust-owned items of real property are themselves items of relationship property.

Professor Nicola Peart in a pre-Clayton article addressed the requirement the family home or premises must form “part of the relationship property”.

Her observations on the point remain worthy of detailed reading. Peart notes “jurisdiction under s 27 does not depend on ownership of the home, but on the right to possess it”.

In my opinion it would be a curious legal anomaly if a party was found to hold a Clayton property interest for the purposes of property division but such property interest was insufficient to grant jurisdiction for an occupation order. Indeed, it is assumed a right to acquire possession of trust-owned property would be within the ambit of a party holding a Clayton property interest.

It is contentious whether a section 21 agreement could prevent a claim for an occupation under s 27. The parties could agree to classify as separate property any potential Clayton property interest, keeping in mind the importance of also addressing in such an agreement the applicability of s 182 of the Family Proceedings Act 1980 following a dissolution. However, section 21D confines the subject matter of contracting out agreements to property rights only.

The moot point is once a Clayton property interest has been classified as an item of separate property under a s 21 agreement, does it then follow that s 27 does not apply?

Essentially, the requirement that the family home or premises must form part of the relationship property is contradicted by the classification a Clayton property interest as separate property. Failing an argument under s 27, an applicant, if eligible, may need to consider an occupation order under the Domestic Violence Act 1995 (DVA).

In M v M [Occupation Order] Judge Burns held that an order can be made on a broader basis under DVA because the wider definition of “property” includes a reference to use and enjoyment. In that case the dwelling house was owned by a discretionary family trust.

Despite the legal complexity there are compelling social justice reasons for accommodating a vulnerable party post separation – regardless of the eventual division of property.

By comparison, parties cannot contract out of the spousal maintenance provisions of the Family Proceedings Act in a s 21 agreement. This recognises the importance of income needs post separation. Housing, of course, is no less important.

Ben Snedden is an Auckland barrister

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