The Supreme Court has dismissed an appeal challenging the appointment of a corporate trustee in a significant trust law decision examining the boundaries of proper purpose in trustee appointments.
In Legler v Formannoij [2024] NZSC 173, the Court examined whether the appointment of a corporate trustee controlled by a beneficiary constituted a fraud on a power, or otherwise had a proper purpose. The case centred on the Kaahu Trust, established in 2008 with assets derived from Ricco Legler’s family wealth.
Following Mr Legler’s death in 2017, his widow Marina Formannoij became sole trustee after the retirement of an independent trustee company. She subsequently appointed Kaahu Trustee Limited (KT Ltd) – a company of which she was sole director – as corporate trustee.
The appellants, two of Mr Legler’s children, challenged this appointment, arguing it was made for an improper purpose – specifically to enable Ms Formannoij to benefit herself at their expense. However, by majority, the Supreme Court found insufficient evidence that Ms Formannoij had exercised the power of appointment for this purpose.
The majority emphasised that the Trust Deed expressly contemplated the appointment of a corporate trustee, even where a beneficiary held an interest in that trustee. They noted Ms Formannoij had made genuine attempts to find an independent replacement trustee before establishing KT Ltd.
In a significant dissent, Chief Justice Winkelmann would have allowed the appeal, finding the appointment was made to deliver complete control of the trust to Ms Formannoij – a purpose she considered improper given the Trust Deed’s emphasis on independent oversight in trustee decision-making.
The decision provides important guidance on the proper purpose doctrine in trust law, particularly regarding corporate trustees. It confirms that technical compliance with a trust deed’s terms will not automatically shield trustee appointments from challenge, but challengers must clearly establish improper purpose.
The case also highlights the importance of careful drafting in trust deeds regarding trustee appointment powers and the ongoing tension between beneficiary control and independent oversight in trust administration.
Richmond Chambers’ Josh McBride and Rachael Woods acted for the successful respondents.
