A family dispute over a trust has reached the highest court in the country as two siblings claim their deceased father’s wife acted in her own interests when she appointed a self-directed company as trustee, removing herself and, months later, the children.

The case before the Supreme Court comes after the siblings, Ken Leglar and Laiala Klaui, failed twice in a bid to have the actions of stepmother Maria ‘Marina’ Formannoij found as a violation of proper purpose, or a “fraud on power”.

They alleged Formannoij had acted improperly when, because of the conditions of the trust deed, she appointed a self-directed company Kaahu Trustee Limited as sole trustee.

Her actions, according to the pair, who have taken their fight to the highest court possible, were self-serving and the appointment of KTL was invalid.

Formannoij disputes the claims made by the siblings and argues it was the only option for her when their late father Ricco Leglar died in 2017, and the remaining trustee resigned.

Legler met Formannoij in 1989, and they married 30 years later. The year before, 2008, the Kaahu Trust was created, with Leglar and Formannoij as the final beneficiaries.

The siblings were listed as discretionary beneficiaries to Kaahu, as well as Legler and Formannoij, but the trustees included the couple and an independent trustee, namely a company directed by Formannoij’s accountant.

When the company stood down as a trustee, Formannoij was left as the sole trustee and in a position where she needed to appoint an independent - in line with the trust deed.

Formannoij created the company KTL on legal advice when she was unsuccessful in finding another independent party. She was the director and her lawyers were equal shareholders.

It was then KTL became a trustee of Kaahu, and Formannoij resigned her trusteeship on the same day in November 2019.

Months later, in March 2020, the siblings were taken off as beneficiaries by KTL, who distributed funds to Formannoij and appointed her as the beneficiary who would be held on vesting day, when the trust ends.

The siblings subsequently launched their legal challenge, believing the appointment of KTL by Formannoij was a “fraud on power”, done for an improper purpose.

The hearing was held today in the Supreme Court. Photo / Mark Mitchell

Kaahu is not the only trust tied up in the family’s financial interests, as a second, Horowai, was established by Leglar as a family trust and of which the children are beneficiaries.

Significant assets, money and property, are in both trusts.

The exact amounts were not specified at today’s hearing. However, in written submissions it was said Kaahu’s trust property was valued at around $10-$11 million when KTL was appointed.

It was argued by the sibling’s lawyer David Bigio KC that Formannoij appointed KTL not in the interest of the beneficiaries, but to obtain control over the trust in an act to benefit herself.

“Her purpose in appointing KTL was to put herself in a position to exercise the trustee’s powers as she pleased and for her own benefit,” he said in written submissions.

“That is the only plausible interpretation of the facts. It is what her new lawyers told her she would be able to do through KTL when advising her that she could appoint a corporate trustee.”

Bigio said Formannoij wanted “absolute control”.

Formannoij’s lawyer Joshua McBride submitted that the alleged improper purpose had not been proven by the siblings’ case, and the Supreme Court should uphold the decisions of the High Court and Court of Appeal.

McBride said the appointment of KTL was “a matter of necessity” for his client as the trust provided her income and security.

“Look, she was there by accident, not design - she tried to find somebody but couldn’t, and went to these lawyers for a solution,” he said.

“She’s not a lawyer an accountant or a professional person, she’s an osteopath.”

The High Court rejected the siblings’ argument in 2021, that Formannoij acted to benefit her interests in appointing KTL, and the argument that she sought exclusive control of the trust to use it how she liked.

Last year, nearly a year and a half after the High Court declined to find Formannoij had “committed fraud on a power”, the majority of the Court of Appeal upheld the same finding.

It found the appointment of KTL was neither beyond the terms of the trust deed or a fraud on power.

If successful at this final hurdle, the siblings seek to have Formannoij removed and a replacement trustee appointed.

However, her lawyers said nothing in the relevant circumstances would justify that approach.

Hazel Osborne is an Open Justice reporter for NZME and is based in Te Whanganui-a-Tara, Wellington. She joined the Open Justice team at the beginning of 2022, previously working in Whakatāne as a court and crime reporter in the Eastern Bay of Plenty.