The Supreme Court has clarified the boundaries of the same court’s landmark decision in Clayton v Clayton [2016] NZSC 29 (Clayton), issuing its decision in Cooper v Pinney [2024] NZSC 181 (Cooper). Cooper relates to the classification of rights and powers in relation to a family trust under the Property (Relationships) Act 1976 (PRA) on the breakdown of a de facto relationship.

In Clayton, Mr Clayton had effectively unconstrained rights and powers in relation to the trust in question, whereas the respondent in Cooper, Mr Pinney, had constrained rights and powers. The Supreme Court dismissed the appeal of the appellant, Mr Pinney’s ex-partner Ms Cooper. Until this decision it was not clear how Clayton would apply to rights and powers of the type held by Mr Pinney, which are more usual with standard New Zealand discretionary trusts.

The decision in Clayton – trust rights and powers can be relationship property

Before discussing Cooper, it is helpful to briefly consider the decision in Clayton. 

In Clayton, the Supreme Court considered whether certain rights and powers in relation to a family trust could be considered "property" under the PRA in the context of a relationship property dispute. The Court held that such rights and powers could be property for these purposes if they provide the relevant person with control over the trust assets that is “tantamount to ownership”, analogous to a general power of appointment. 

The Court found that Mr Clayton did have control of this nature over the trust. He had the unconstrained discretion to be the sole trustee, make himself the sole beneficiary, and distribute the trust fund to himself, without breaching the terms of the trust or his fiduciary duties (which had largely been excluded by the terms of the trust). 

As a result, his powers were property for the purposes of the PRA. Under the PRA that property was relationship property, and therefore divisible between him and Mrs Clayton. The value of that property was calculated by reference to the value of the net assets of the trust. 

This was a significant decision in a recent spate of “trust-busting” cases and expanded the application of the PRA to trust rights and powers in certain – albeit extreme – circumstances.

The background to Cooper

Cooper defines the limits of the Clayton decision. Cooper relates to a relationship property claim by Ms Cooper in respect of the MRW Pinney Trust (Trust), similar to that brought by Mrs Clayton in Clayton.

Ms Cooper and Mr Pinney had been in a de facto relationship between 2004 and 2014. Mr Pinney (along with three others) settled the Trust in 2005 in order to receive assets from a trust established by his father, including a farm.

Mr Pinney is one of a number of beneficiaries of the Trust and holds the powers to appoint and remove trustees under the deed creating the Trust (Trust Deed). He was one of the original trustees but was not a trustee by the time of the hearing.

Ms Cooper’s claim

Relying on Clayton, Ms Cooper argued that Mr Pinney’s rights and powers in relation to the Trust gave him effective control over the trust assets. As such, they should be treated as property, and therefore relationship property, for the purposes of the PRA. If the Court agreed with Ms Cooper then she would have been able to access Trust assets.

The Court therefore had to consider whether Mr Pinney’s powers of appointment and removal of trustees provided him with control “tantamount to ownership”.

The Supreme Court’s decision – Mr Pinney’s rights and powers are not relationship property

The Court examined the differences between Mr Pinney's powers under the Trust Deed and those held by Mr Clayton. 

Unlike the powers in Clayton, where the trustee could act alone and make decisions in his or her own interest, the Trust Deed required at least two trustees and mandated that decisions be made unanimously. These constraints meant that Mr Pinney could not use his powers to take sole control of the Trust or its assets without violating his fiduciary duties, which were central to the operation of the trust.

The Supreme Court dismissed Ms. Cooper's appeal, agreeing with the High Court and Court of Appeal that Mr Pinney’s powers did not amount to ownership of the trust assets. The Court emphasised that Mr Pinney’s fiduciary obligations, which required him to act for the benefit of all beneficiaries and not just himself, limited the extent of his control. Further, he could not use his power to appoint trustees in a way that violated the trust's purpose or breached his obligations to other beneficiaries. In this regard the Court distinguished the situation from Clayton, where the trustee could act unilaterally.

The Court considered the proper law against which to determine the dispute. This was relevant because the Trusts At 2019 was enacted after the parties had separated. The Court concluded that the applicable law at the time of separation in 2014, being the Trustee Act 1956, should apply. 

The Court also considered the role of tikanga, which had been raised for the first time in the Supreme Court proceedings. However, it declined to make a ruling on the point, noting that the matter had not been properly raised in or considered by the lower courts, and could not conceivably make a difference to the outcome. 

Key takeaway – take legal advice early on in the relationship 

The Supreme Court has clearly identified the boundaries of the decision in Clayton. In this situation, Mr Cooper’s constrained powers were not tantamount to ownership of the Trust’s assets and therefore they were not property (nor, as a result, relationship property) under the PRA.

While rights and powers in relation to a trust can be property in certain circumstances, it depends on the specific circumstances and, mostly importantly, the trust deed. If the relevant spouse or partner does not have unconstrained powers it is unlikely that his or her powers will be property.

Cooper illustrates the importance of obtaining legal advice. This is necessary to protect assets, in the case of those in Mr Pinney’s position, and to determine rights to property, in the case of those in Ms Cooper’s position. This advice should be taken at an early stage in the relationship to manage expectations and avoid lengthy and expensive disputes such as this one. It is likely that a suitably drafted relationship property agreement between the parties that sets out their respective rights would have avoided this dispute.

This alert was written by Daniel McLaughlin, a Special Counsel in our Private Wealth team.