The recent Supreme Court case of Cooper v Pinney has provided a clearer picture on when family trust rights and powers will constitute “property” for the purposes of the Property (Relationships) Act 1976 (PRA).[1]
The takeaway for practitioners following this case is that – while rights and powers under family trusts may be property under the PRA – there is nuance that must be considered. If the trust holder does not have full control over the trust enabling them to make decisions in their own interests, then this is not tantamount to ownership and so would not be property for the purposes of the PRA.
For clients, this case – as in many others – demonstrates the importance of obtaining legal advice early on to ensure assets are properly protected, or for clients in Ms Cooper’s position, to determine what their rights may be at the outset of a relationship, as opposed to the end.
Like in most things, legal advice during rosier times is invaluable not just for the protection of assets but also to avoid disappointing surprises and drawn-out legal costs if a relationship ends.
The principle from Clayton v Clayton
In Clayton, the Supreme Court previously held that trust rights and powers are “property” under the PRA when the powers held are tantamount to ownership. This arises where the trustee has the unconstrained discretion to appoint or remove beneficiaries, such that the trustee could make themselves the sole beneficiary without breaching the trust deed or their fiduciary powers.[2] In such a situation the trust assets become vulnerable to claim for division between partners or spouses under the PRA.
However, it was unclear whether constrained trust rights and powers would also be considered property under the PRA. The present case of Cooper v Pinney has clarified this point.
Cooper v Pinney – the facts
Mr Pinney was in a de facto relationship with the appellant, Ms Cooper, until they separated in 2014. After the breakdown of the relationship, Ms Cooper made a submission to the Family Court over Mr Pinney’s interest in a family trust and whether this should be treated as “property” rights or interests to be divided between the parties according to the PRA.
Mr Pinney’s trust powers were more restricted than the powers in Clayton. In Clayton, Mr Clayton had been the sole trustee and had unconstrained discretion to make decisions affecting beneficiary interests, including the power to remove all discretionary beneficiaries other than himself.
In contrast, although Mr Pinney had the power to appoint or remove trustees, the trust deed required a minimum of two trustees at any time and did not provide for unconstrained discretion to make decisions affecting beneficiary interests.
Notwithstanding this difference, the Family Court held that the principle from Clayton still applied because Mr Pinney could appoint a compliant trustee or a trustee company of which he was the sole director, essentially taking control of the trust.[3]
However, both the High Court and the Court of Appeal distinguished Clayton. The High Court held that Mr Pinney’s powers of appointment were constrained by his fiduciary obligations to exercise his powers for the beneficiaries’ benefits (and not his sole benefit). This meant that his powers were not equivalent to ownership and so his trust rights and powers are not property under the PRA.[4]
In the Court of Appeal, the majority upheld the High Court’s decision for similar reasoning, distinguishing Clayton. One justice (Miller J) dissented, reasoning that Mr Pinney’s general powers of appointment remained broad enough to give him control of the trust and thus qualify as his “property” under the PRA.[5]
Supreme Court Judgment
In its 2024 judgment, the Supreme Court dismissed Ms Cooper’s appeal.
The Supreme Court held that the trust deed’s limits on Mr Pinney’s powers meant that he did not hold powers tantamount to ownership and, accordingly, his trust rights and powers were not property under the PRA.
The Supreme Court identified four main differences between the trust deed in Clayton and the deed in the present case:[6]
- While both deeds granted a power to appoint and remove trustees, Mr Pinney’s family trust mandated that at least two trustees hold office at any given time, while the deed in Clayton allowed Mr Clayton to hold office as sole trustee.
- Mr Pinney’s family trust deed further required that all powers and discretions vested in the trustees be exercised unanimously, whereas in Clayton the sole trustee was free to act alone.
- While both deeds contained general clauses allowing trustees to make decisions in their “absolute and uncontrolled discretion”, the deed in Clayton expressly excluded the obligation to consider the interests of the beneficiaries, while the Mr Pinney’s family trust deed did not.
- The deed in Clayton allowed Mr Clayton to remove or add any person as a discretionary beneficiary of the trust, empowering him to remove all discretionary beneficiaries other than himself and strip the trust before the vesting date set out in the deed. Mr Pinney’s family trust deed did not contain such a provision.
As a result of these differences, Mr Pinney’s power to remove or appoint trustees was constrained. To exercise the power of appointment with the intention to take sole control of the trust would breach the ‘proper purpose’ rule and would be inconsistent with the fiduciary nature of the power.[7] In addition, the requirement for two trustees meant that Mr Pinney could not have sole control of the trust.[8]
The overall effect of these constraints was that Mr Pinney’s powers were substantially more limited than those in Clayton, and Mr Pinney could not exercise his discretion in his own interests. This resulted in an interest that was not equivalent to ownership and therefore is not property under the remit of the PRA.[9]
Authors: Mike King; Rebecca Dean
[1] Cooper v Pinney [2024] NZSC 181 (SC Judgment).
[2] Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.
[3] Cooper v Pinney [2018] NZFC 9120; cited in the SC Judgment, above n1, at [47]-[48].
[4] Pinney v Cooper [2020] NZHC 1178, [2020] NZFLR 150; cited in the SC Judgment, above n1, at [51] and [53].
[5] Cooper v Pinney [2023] NZCA 62, [2023] 2 NZLR 455; cited in the SC Judgment, above n1, at [63].
[6] SC Judgment, above n1, at [101].
[7] At [104]-[105].
[8] At [107].
[9] At [125]-[126].
