Prime v Hardie case

Facts

This case is about Ms Prime and Mr Hardie, who were in a de facto relationship from 1992 to 2001. Mr Hardie bought a property at 3A Dallinghoe Crescent, Milford for the couple and their daughter in 1993. In December 1993, he transferred the property to the trustee of Mr Hardie’s trust, Mr Joyce. Eventually, the trustee of Hardie’s trust was replaced by Mr Joyce’s company, G M Joyce & Co Ltd. In 1996, the couple and their children moved to a new property (2 Rahopara Street, Castor) purchased by the trust after selling their previous property at Dallinghoe Crescent. The trust also purchased 2 other rental properties. In 2001, Mr Hardie successfully got Ms Prime and their children out of the house, but they reoccupied shortly afterwards. This led to a termination of their relationship.

Issue

After the breakdown of their relationship, Ms Prime pleaded an interest on property arising out of contributions made to the property. The problem in this case was that all the properties were owned by the trust.

Courts’ decision

Court decision separated family home and other assets (rental properties) of the trust. Ms Prime only contributed to their family home, thus the court only looked at this property to make decision. The family home where she and Mr Hardie and their children lived in was owned by the trust, not Mr Hardie himself. The suggestion that the trust is sham was raised up.  The court claimed that the trust was effectively Mr Hardie’s alter ego.

The evidence that the court given out were that: he was the principal beneficiary of the trust; he helped borrowing money for the trust to buy assets. He paid the interest on the mortgages and rates and insurance. In his 1998 tax return, he claimed rent received from the trust’s rental property and claimed it for his personal income. Thus, the court claimed that:

“The plaintiff did have an expectation of an interest in the family home and, that despite the fact that it is owned by a trust, that expectation was a reasonable one. It was reasonable because the home was treated although it was owned by the first defendant. There was no rent paid for it. The first defendant paid the outgoings. The plaintiff paid for power and gas, as well as other household expenses. Thus, the trust can reasonably expect to yield the claimant an interest in the family home”

However, there is no real interest when considering the rental properties because the contribution of Ms Prime is very minimal.

Lessons learned

Although assets were put on the trust, court will look at the intention and the interest of other parties to the assets to make decision. It is more important when dealing with assets in the family trust. To prevent the trust to be sham, people have to make sure that:

• Do not treat the assets as their personal properties.
• Appoint professional and independent outsider as the trustee of the trust.
• Express clear purposes and intentions of the trust

Trust is a highly-complicated area. Please seek professional advice if you want to set up a trust.

Reference

Prime v Hardie (2003) NZFLR 481