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Extra Trusts Case Summaries:
The house transaction was completed and the property
Objects of the Trust:
registered in the name of the trustees, mortgage guaranteed
In Re Denley's Trust Deed, Holman v Martyn and Co
by Reynolds personally, mortgage payments by Reynolds
 1 Ch 373:
and Ms Clyma.
"The said land shall be maintained and used as and for the On Feb 1998 Mr Reynolds entered into a contract on behalf purpose of a recreation or sports ground primarily for the
of the trust to purchase another property in Queenstown.
benefit of the employees of the company and secondarily
The trust was never administered well and there was
for the benefit of such other person or persons (if any) as
intermingling between the affairs of the trust and Mr
the trustees may allow to use the same..."
Mr Mills has argued that the trust is either a trust for the benefit of individuals, in which he argues that they are an
Sham. A sham exists where there is an intention to conceal
unascertainable class, and therefore the trust is void for
the true nature of a transaction: Snook v London and West
uncertainty, or that it is a purpose trust, that is a trust for
Riding Investments Ltd. A trust will be held to be a sham
providing recreation, which he submits is void on the
where there is an intention to have an express trust in
appearance only. A sham requires an intention to mislead.
The trust deed expressly states that employees of the
Equity looks to intent rather than form. The absence of an
company shall be entitled to the use and enjoyment of the
intention to create a genuine trust prevents the trust from
being valid, because one of the essential ingredients for its
According to Leahy v AG, 'a gift can be made to persons,
creation is missing. The trust is void for the lack of
but it cannot be made to a purpose or an ojbect: so also a
intention to create a trust.
trust may be created for persons as a cestuis que trust but not for a purpose or object unless the purpose or object be The OA submitted that, in order to find the trust a sham, it charitable.'
was not necessary to prove a common intention between
His Honour eventually concluded that the individuals for
both the settlor and the trustees. Mr Guest argued that there
whose benefit the trust was designed were capable of
was no need to establish an actual intention to create a sham
ascertainment at any given time and that the trust was not
on part of the trustees, but that it was sufficient if the
void for uncertainty of objects.
trustees demonstrated a lack of care and concern in following along with Mr Reynolds wishes. He relied on
Challenging the Validity of Trusts:
Midland Bank v Wyatt, for the contention that, where a
Official Assignee v Wilson and Clyma  3 NZLR 45
trustee goes along with a settlor neither knowing, nor
caring, what he or she is signing, this constitutes sufficient
This appeal involves the law relating to shams and alter ego intention to create a sham. The factual situation in Wyatt is principles including whether they constitute a separate
markedly different to the present. Mr Wilson was a
action or are only an evidentiary matter with regard to a
professional trustee who knew what he was signing.
sham. Mr G M Reynolds was a property developer, adjudicated
In Snook, Diplock LJ held that all parties to the transaction
bankrupt in the 1990s. By March 1996 he had been
must share a common intention before a sham finding could
discharged, and he entered into an agreement to purchase a be made. The OA sought to distinguish Snook because it house.
involved a bilateral transaction (hire purchase agreement),
He settled the G M Reynolds Family Trust in May 1996
whereas in the context of trust, transactions are unilateral. A
with the first respondents as trustees, and the beneficiaries settlor can unilaterally create a trust, and a trust is complete, were Mr Reynolds' children and grandchildren.
without any element of acceptance by the trustee. Mr Guest
thus argues that only the settlor's intention was significant. But there is no 'sham trust' to be created - there is no trust to be a sham. Matthew Conlagen argues that Ms Palmer In Re the Esteem Settlement (overseas), the court found that mistakenly categorises all trusts as unilateral transactions, a settlor transfers assets to a trustee to hold on trust, and the distinguishing them from consensual contractual settlement will be a sham only if both the settlor and the
trustee have a common intention. This was based on four
An important prior question is whether common intention
must be ascertained objectively, or subjectively.
Previous authority suggests a common intention is required
Not all trust transactions have the same form. Some are
It would be absurd if in circumstances where a
unilateral because the settlor and the trustee are not separate
trustee has acted as a perfect trustee applying
persons, and there is therefore no possibility of mutuality of
assets in good faith that the secret, unexpressed
any mental state, which precludes a common intention. But
intention of the settlor that a trust be a sham could other trusts are, practically speaking, bilateral involving the cause the trust to be held to be invalid.
3. actual intention and consciousness of both the settlor and
Gifts should not be invalidated soley on the basis the trustee(s). of intention
4. Trusts are not necessarily unilateral transactions.
The principle that an arguable allegation of a sham trust
The court found that the trust deed in this case was legitimates examination of subjective intention, and not not unilateral as it contained terms for the benefit simply the objective intention as evinced by the "trust" of the trustee such as renumeration.
documentation, is consistent with the proposition that courts will not wantonly interfere in ostensibly valid
It is trite law that in order for a valid trust to be created
commercial transactions. In the context of trusts, where a
three certainties must be satisfied, certainty of intention,
transaction objectively appears to be a trust, it will be held
certainty of subject matter, and certainty of object: Knight v out to be a trust, even if it is unclear whether the settlor Knight.
actually intended there to be a trust (Paul v Constance).
A court cannot hold that a trust exists unless it is satisfied that there was the intention to create such a trust. Equity
The OA argued that, even if it could not be established that
will look to the substance not simply the form of any
Mr Reynolds intended the trust operate as a sham from its
inception, he had developed such an intention by the time the Qtown property was acquired.
The creation of a trust is rightly described as a unilateral
The judge undertook an assessment of whether individual
transaction. If, objectively assessed, a settlor intends to
transactions were shams, rather than assessing the overall
create a trust, and the other certainties and requirements of picture. constitution are present then the intentions of the trustee will be irrelevant.
As an alternative, the OA argued that the trust was an alter
A trust does not normally fail for lack of a trustee.
ego of Mr Reynolds. Two HC cases have affirmed the
This feature of valid trust formation is the basis of Jessica
existence of the alter ego trust concept in NZ - Prime v
Palmer's argument. The trustee's intention is irrelevant to
Hardie, and Glass v Hughey. A number of cases in the
the creation of a valid trust, and likewise it is irrelevant to
context of de facto or marital relationships have relied on
the creation of the appearance of a trust. If no mutuality of the alter ego concept. intention is required to create a valid trust, it is conceptually There are some cases/legal writings that suggest that an incoherent to require mutuality to create a sham trust.
alter ego trust occurs where a person is held to have control
over an express trust to such an extent that the trustees are Official Assignee v Sanctuary Propvest 11/6/09 Asher J, HC considered to be "mere puppets" of the defendant. To find Auckland CIV-2009-404-852: that the trust structure is a facade.
Establishment of whether the caveat should be sustained or fall. Need to establish an arguable case that they have an
The relationship between shams and alter ego trusts is not interest in the land. clear. In Australia it has developed as a separate cause of
Mr Armitage bankrupt three times.
action to a sham. An alter ego occurs where the "controller" Mr Robinson argues that Sanctuary Propvest is a sham and is deemed to have effective control over the trust and/or
alter ego for Mr Armitage, and that it is appropriate to
trust property. Unlike a sham, the alter ego is intended to be pierce the corporate veil. He relies on Official Assignee v a genuine trust. There is no requirement of intention to
15 Insoll Avenue Ltd, where the corporate veil was lifted
deceive. Need to view the Australian cases with some
when it was established that the company did not have
caution. Actual control alone does not provide justification persons as directors who knew or had consented to be for looking through/invalidating a trust.
directors. He also argues that Sanctuary Trust is a sham and that there was a common intention, ascertained objectively,
To establish a sham, the intention to mislead must be shown to conceal the true nature of the transaction. to have existed from the inception of the trust. We are satisfied that Chisholm J's treatment of the alter ego trust
Mr Dunn was shareholder, director and trustee. He is a
argument was correct. Alter ego trusts are not an
truck driver and met Mr Armitage at the bowling club.
independent cause of action, nor are they the same as
The effect of his statement was that he was asked to
shams. In the trust context, alter ego arguments are
become involved in the trust and the company by Mr
confined to evidence to help establish a sham.
Armitage. His role was to be that of a "letterhead" while Mr Armitage would run the company. Mr Dunn's evidence
Where breaches of trust can be established, that does not
indicates that Mr Armitage was the person who set up the
necessarily suggest that the trust has been a sham from its
company and the trust. He said that he was told that if he
helped Mr Armitage in this way he would get a good credit
It is not necessarily the case that the transfer was not in the rating and that it would enable him to obtain a house or best interests of the beneficiaries. There is no direct
something of his own.
evidence that Mr Reynolds intended that the G M Reynolds Family Trust be operated as a sham. There was an absence Mr Armitage would come around with papers for him to of resolutions or minutes, no annual accounts, intermingling sign, which he would sign. of financial arrangements between the trustees and Mr
I consider that the following factors indicate a lack of
Reynolds, and no record of decisions or other
intention on the part of Mr Armitage, Mr Crump and Mr
documentation relating to the use of trust property.
Dunn to set up a genuine trust/company structure:
Evidence of poor administration of the trust is insufficient,
1. The circumstances of the creation of the trust and
of itself, to establish a sham. This may be evidence of a
the purchase of the property arguably at the
breach of trust, but the fact that the trustees have acted
direction of Mr Armitage, at a time when he was
poorly in managing a trust does not establish an intention
prohibited by the provisions of the Insolvency Act
that the trust is a sham.
1967 from owning property.
2. Mr Dunn's lack of business knowledge and
We are not persuaded that there is a basis from which the
knowledge of the specific property purchase, his
Court could declare that the trust is a sham.
apparent lack of knowledge of Mr Crump, and his entire lack of substantive involvement in any of
the property issues. He was the puppet of Mr
Here, I have already found that it is seriously arguable that
this company was set up to enable the bankrupt, Mr
The signing of blank cheques by Mr Dunn, and the Armitage, to disguise what was in effect, acquisition of possible forging of his signatures, suggested by Mr property by him. Dunn.
4. I am also satisfied that if a company is created as a sham or
Mr Armitage's control of the actions and the affairs facade so that a person can perpetrate a fraud or carry out of the company.
an unlawful activity, the Court may look behind the
In essence Mr Dunn's whole involvement appears to have
been a facade to hide Mr Armitage's control. It was never
An institutional constructive trust is one which arises by the
intended that Mr Dunn would function as a trustee or
principles of equity and whose existence the Court simply
director, and he did not in any substantive way do so. He
recognises in a declaratory way. A remedial constructive
did what he was told by Mr Armitage.
trust is one which is imposed by the Court as a remedy in circumstances where before the order of the court, no trust
It must be recognised that in New Zealand, company and
of any kind existed.
trust structures are not lightly put to one side. The parties are free to choose whatever lawful arrangements suit their A constructive trust arises therefore by operation of law in purposes, providing they are not shams.
circumstances where it would be unconscionable for the
While it is easy to assert that a structure is a sham, to give holder of property to assert a beneficial interest in that any such allegation teeth it is necessary to find a principled property. The constructive trust is a flexible remedy. legal basis for putting the structure to one side and putting something else in its place.
Before a trust is to be regarded as a sham, it must be shown that it is intended by the parties to have an effect different
In essence the corporate veil should only be lifted if in the from its objectively determined legal effect. The fact that particular context and circumstances its presence would
there is factual control by someone other than the trustee
create a substantial injustice. If they are genuinely and
does not mean the trust is a sham.
honestly used they should not be set aside. The special
Factual control has no effect on legal ownership.
circumstances of this case enable the Court to pierce the corporate veil.
In this case, unlike Mr Reynolds, Mr Armitage was a
The court can treat the acts of the company as those of the discretionary beneficiary of the trust. The Official Assignee shareholder if:
has a reasonable argument that he is in the position of Mr
The company is merely an agent of the shareholder.
Armitage, and that the position is that of beneficial owner
The corporate entity is a sham or facade intended to conceal of the property. There is no difficulty in a constructive trust the shareholder's involvement.
The corporate entity is being used to perpetrate a fraud. Challenging Dispositions to Trusts: It would be artificial to regard Sanctuary Propvest as the
Regal Castings v Lightbody  2 NZLR 433 (SC):
agent of Mr Armitage. I am satisfied that the company
Mr Lightbody made himself personally liable for the debts
structure has been set up as a facade, lacking in reality a
of Capro Three Ltd to its major supplier, Regal Castings
structure involving shareholders and directors, but rather
Ltd. Without telling Regal, some three years later Mr and
involving control by a single person in order to avoid or
Mrs Lightbody transferred their house, which was their
disguise legal duties or obligation on that person. This was only substantial asset, to a family trust. Over the next four the sort of sham that was put to one side in Jones v Lipman. years, Mr and Mrs Lightbody forgave the debt. Capro went
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