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Shifting Sands

June 2017

In the leading Property (Relationships) Act case of Clayton v Clayton the Court of Appeal (2015) & Supreme Court (2016) found that Mr Clayton’s powers under a Trust was relationship property, and this meant that Mrs Clayton had a relationship property interest in that Trust to the value of half the Trust’s assets.

In February 2017 the High Court considered the Clayton decision in relation to another Relationship Property & Trust proceeding. Mr B had lodged a claim of interest against the former home he had lived in with his now estranged wife, Mrs B. The house was owned by a Trust of which Mrs B and her new partner were Trustees and discretionary beneficiaries. Mr B had disclaimed all interest as Trustee and discretionary beneficiary (to protect it from creditors; Mr B subsequently became bankrupt).

The High Court held that Mrs B’s powers under the Trust did not amount to relationship property in which Mr B had an arguable interest. Unlike Clayton, Mrs B was unable to appoint the assets of the Trust to herself, or re-settle the Trust in any way which favoured her.

This case illustrates that Clayton was a case very much decided on its particular facts. In that case Mr Clayton had given himself wide ranging powers, namely he held the power of advancement, power to distribute the Trust capital on the vesting day or earlier, and the power to re-settle the Trust. These powers allowed him to favour himself if he brought forward the vesting date to a date of his choosing, and he had appointed all of the Trust capital to himself. That would give him both legal and beneficial ownership of the Trust capital and the Trust would be at an end. In this case, the High Court said that Mrs B could not by her own action take steps to give herself both the legal and beneficial ownership of the Trust capital and bring the Trust to an end. She was constrained from doing so by the clear express terms of the Trust. The Court found that in these material respects the Trust differed from the Trust which was before the Court in Clayton.

This shows that it is important to get the terms of your Trust right from the outset, and to adhere to the principles of Trust law, or else the Trust property will be more susceptible to claims against it.

Mr B’s claim to an interest in the Trust based on a constructive trust also failed, as he could not argue an expectation of an interest when his actions in the past in excluding the property from his Estate (and bankruptcy proceedings) were entirely inconsistent with what he was now asserting.

In this case, the Trust served its purpose in protecting the asset for the ultimate beneficiaries of the Trust. This was achieved by carefully drafting the Trust Deed to ensure that Mrs B did not have the sort of wide ranging powers that Mr Clayton had given to himself in the Clayton case.