3.25A number of issues follow from these recommendations. First, the degree to which the ability to declare something is not an express trust will interface with current case law relating to “sham” trusts or “illusory” trusts, or to the inherent jurisdiction of the court simply not to recognise the existence of a valid trust. Second, there is a question as to what the effects of a declaration that a particular arrangement is not an express trust will be. Third, there is the issue as to what effect our recommendation that terms of trust cannot exclude the mandatory duties will have on trust deeds that purport to exclude those mandatory duties.
3.27Nothing in our recommendations is intended to stand in the way of such a process. It is part of the role of courts to determine whether there is a valid trust and what the effect of that valid trust ultimately is. The effect of a determination under our proposed statute that there is no express trust will essentially be to remove the purported trust from the operation of the new Trusts Act. The courts would still have the ability to determine that there was some other kind of trust or that a trust-like relationship was established. Generally, we think such a determination would be unlikely. The failure to satisfy the essential characteristics of a trust and the three certainties of intention, property and objects in the statute would also fail to satisfy what most would consider to be the requirements for establishing a trust. However, legal developments in particular areas may lead to the variation of some of those elements in particular circumstances, and we think it is important to leave open the opportunity for such developments.
3.29Disputes like Clayton will unquestionably remain an important pressure point in the law of trusts in New Zealand. Although we make no judgement about the particular facts of Clayton itself, the question arises from the result or the reasoning by which the result was reached, as to how this particular kind of dispute might be reasoned under the new Trusts Act. The approach under our recommended statute would be to first start with the provision that confirms the courts’ ability to declare that a purported trust not to be an express trust within the meaning of the new Act. Under our new statute, once those core characteristics have been satisfied, the question then becomes one of whether the terms of the trust have purported to exclude one of the mandatory duties that is otherwise provided for in the Trusts Act. If it has purported to exclude such a duty then the provision that we have recommended would have the effect of rendering that exclusion void and would essentially read those duties into the trust deed. It is possible that what might have otherwise been held to be a sham or illusory trust for having purported to have excluded a key mandatory duty will be saved in essence by the voiding of the otherwise offensive clause.
3.30However, that would not be a necessary result of our new Trusts Act. We would expect a court faced with such a contention to look at whether the existence of such an exclusion in the terms of the trust went directly to the intention of the parties to create a trust in the first place. In many cases the express exclusion of the mandatory duties will indeed indicate lack of intention to create a trust, and hence there will not be a trust. We have taken the view in this Report that it should not be a necessary consequence of the exclusion of one of the core mandatory duties that there was in fact no intention to create a trust. There may well remain cases where it can be appropriately held that there was an overriding intention to create a trust relationship despite poor wording or misapprehension as to what must be contained in a valid express trust deed. Such a determination would necessarily be particularly fact specific, as indeed it is under the current law.