Webb v Webb [2020] WTLR 1461

Analysis

The appeal arose in a dispute between husband and wife about the matrimonial property available for division.

After Mr and Mrs Webb were married in 2005, Mr Webb established two family trusts for the purpose of acquiring land and other assets in the Cook Islands (the Arorangi Trust and the Webb Family Trust).

The Arorangi Trust was established with Mr Webb as sole trustee, and Mr Webb and his son Sebastian as the two beneficiaries. The deed provided for a consultant to assist the trustee and for who could remove the trustee, request early vesting of the property and consent to variation of the trust. Mr Webb appointed himself as the consultant. The deed further provided that Mr Webb could act and exercise all powers and discretions conferred notwithstanding his interests may conflict with his duties to the trust or any beneficiary. The settlor named in relation to the Webb Family Trust was a Mr Ellison, a business colleague of Mr Webb.

In 2013 Mr and Mrs Webb moved from New Zealand to the Cook Islands. The New Zealand Inland Revenue Department (IRD) had begun an investigation into Mr Webb’s affairs. Default assessments were raised and Mr Webb’s challenge rejected. As of 15 September 2017 the sum unpaid including interest and penalties was NZ$26m.

Mr and Mrs Webb separated in April 2016 and in May 2016 proceedings were commenced in the High Court of the Cook Islands for matrimonial property orders.

At the trial the court had rejected Mrs Webb’s argument that the trusts were invalid or sham trusts. It also found it likely that Mr Webb would have to pay the debts he owed to IRD and that they constituted personal debts which would have had to be brought into account. Even if the trusts had been invalid that debt would have exhausted any matrimonial property.

Mrs Webb appealed to the Court of Appeal in the Cook Islands. Her appeal was allowed. It was held that the tax debt was unlikely to be enforceable in the Cook Islands. The trusts were held to be invalid as the trust deeds had failed to record an effective alienation of the beneficial interest in the assets in question.

Mr Webb appealed to the Privy Council. He contended that there was no matrimonial property to divide because the value of such property was completely extinguished by his debt to IRD. Mr Webb also argued that the assets in issue were owned by either of the family trusts.

Held:

(Unanimously)

1. 1) For a debt to be a personal debt for the purposes of s20(5) of the New Zealand Matrimonial Property Act 1976 (as applicable to the Cook Islands), the debt must be enforceable or likely to be paid. It would make no sense to allow personal debts to be deducted from the value of matrimonial property in circumstances where those debts were unenforceable and unlikely to be paid.

(Per Lord Kitchin, Lord Carnwath, Lady Black and Lord Briggs):

1. 2) Mr Webb’s liability to the IRD was undoubtedly a debt incurred by him. However, there was a long-standing principle of common law that the courts will not collect taxes of a foreign state for the benefit of the sovereign of that foreign state. The Cook Islands were a distinct sovereign state. The general common law principle was now one which applied to the Cook Islands. Enforcement would run counter to the concept of the Cook Islands as a separate sovereign state. Government of India v Taylor considered.
2. 3) There was no real likelihood of Mr Webb paying the debt. He had vigorously challenged the default assessments raised against him. There were no details of Mr Webb engaging with IRD, or of when and how he proposed to meet the liabilities. The particular issue was whether Mr Webb would use the property in the Cook Islands to pay the debt. Mr Webb had expressly reserved the right to argue in any enforcement proceedings that the IRD debt was not enforceable against Cook Islands property.

(Unanimously)

1. 4) There was no inconsistency between the findings that the trusts were not shams and a conclusion that Mr Webb’s attempts to create the trusts had failed or were defeasible. Acceptance that Mr Webb intended to create trusts did not preclude a finding that he reserved to himself such broad powers as settlor and beneficiary that he failed to make an effective disposition of the relevant property.
2. 5) The substantive question was whether Mr Webb’s powers under each of the trust deeds was such that, in equity and all the circumstances of the case, he could be regarded as having had rights in the trust assets which were indistinguishable from ownership. Mr Webb had the power at any time to secure the benefit of all trust property to himself and to do so regardless of the interests of the other beneficiaries. He could be regarded as having rights tantamount to ownership.
3. 6) The Webb Family Trust was expressed to continue for a maximum period of 60 years. At the date of the deed there was a very real possibility that a future interest might vest outside the perpetuity period. It was therefore immediately void at common law.

Per Lord Wilson (dissenting view on the treatment of the IRD debt):

1. 7) Mr Webb’s IRD debt was enforceable against his matrimonial property in the Cook Islands, at any rate indirectly through bankruptcy even if not directly. The debt was legally actionable, action already having been taken in New Zealand in relation to it. The trial judge had also concluded that there was a real likelihood Mr Webb would have to satisfy the debt. That was a clear finding of fact.

Appeal dismissed.

JUDGMENT LORD KITCHIN (with whom Lord Carnwath, Lady Black and Lord Briggs agree): Introduction [1] This is an appeal in a dispute between spouses about the matrimonial property available for division between them after their relationship has come to an end. It raises many issues concerning the relevance of a tax debt incurred by the …

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