[2014] NSWCA 50
Saxby Soft Drinks Pty Ltd v George Saxby Beverages Pty Ltd (2009) 14 BPR 27,213
[2009] NSWSC 1486
Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317
Source
Original judgment source is linked above.
Catchwords
[2014] NSWCA 50
Saxby Soft Drinks Pty Ltd v George Saxby Beverages Pty Ltd (2009) 14 BPR 27,213[2009] NSWSC 1486
Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317
Judgment (2 paragraphs)
[1]
Judgment
By Deed dated 22 September 1971, William Cole (the Settlor) settled on the plaintiff in this proceeding (the Trustee) a fund to be held by the Trustee upon the trusts and for the intents and purposes set out in the Deed (the Trust).
Clause 2 of the Deed provides:
"2. Until the vesting day the Trustee shall stand possessed of the Trust Fund UPON TRUST as to the income thereof before the end of such financial year to divide and pay the same or such position thereof as the trustee may in his absolute discretion deem meet to or among the beneficiaries hereinafter referred to either solely to one of them or to such one or more of them in such shares and proportions as the Trustees may in his absolute discretion deem meet AND in respect of any portion of such income as shall not have been divided and paid as aforesaid at or prior to the end of such financial year, for ROSS GEOFFREY TOMLINSON of 'Myall Plains', Terry Hie Hie near Moree absolutely AND the provisions of section 43 of the Trustee Act 1925-42 relating to accumulations or income and the provisions of any present or future Act or Ordinance of any State or Territory of the Commonwealth of Australia relating to accumulation of income in so far as the same are in consistent with the provisions hereof are hereby expressly excluded from and shall not apply to the provisions of this Deed."
Clause 4 of the Deed provides:
"4. The Trustee shall stand possessed of the Trust Fund upon the vesting day in trust for the beneficiaries hereafter referred to or such one or more of them exclusively of the other or others in such shares and proportions as the Trustee in his absolute discretion may determine on or within a period of one month before the vesting day and in default of such determination as aforesaid by the Trustee upon trust for the said ROSS GEOFFREY TOMLINSON absolutely.
This beneficiaries hereinbefore in this Deed referred to are:-
The children or child or grandchildren or grandchild for the time being of ATHOL JOSEPH TOMLINSON of 'Myall Plains', Terry Hei Hei, Grazier."
Ashton v Pratt [2020] NSWSC 1196 | Case summary | Zoe
The "vesting day" is defined in cl 1 of the Deed as:
"…the day upon which shall expire the period of thirty years after the execution of this settlement or the period of twenty years after the death of the last survivor of the descendants now living of his late Majesty King George VI whichever shall be the shorter or such earlier date as the Trustee may at any time not earlier than one year after the execution of this settlement in writing or by oral declaration appoint to be the vesting day."
The emphasis in the quotation above is mine, and identifies the words that are in issue in this proceeding.
This proceeding was commenced by the Trustee by summons filed on 22 May 2020.
The Trustee seeks a declaration that:
"There has been an error of expression in the definition of 'vesting date' contained in the Deed of Settlement dated 22 September 1971 between Murray William Cole as Settlor and Ormonde Roger Butler as Trustee ('the trust estate'). The word 'shorter' should be read and construed as if meaning 'the longer period'."
The Trustee also seeks an order that the costs of the proceeding be paid out of the assets of the Trust on an indemnity basis.
As will be apparent from the terms of the Deed set out above, the Trust is a discretionary trust. The beneficiaries do not have a proprietary interest in the assets of the Trust, but are entitled to enforce due administration of the Trust: see Public Trustee v Smith [2008] NSWSC 397 at [107] and the authorities there cited; see also D Ong, Trusts Law in Australia (5th ed, 2018, The Federation Press) at 327-331.
The Trustee is the only party to this proceeding. No person falling within the class of beneficiaries set out in cl 4 of the Deed has been joined as a defendant to the proceeding.
Prior to the hearing, I caused my Associate to notify the Trustee's legal representatives that, at the hearing, I would need to hear from the Trustee as to whether it is appropriate to hear and determine the claim for declaratory relief without the beneficiaries being joined to the proceedings, in circumstances where it appeared that the Court's decision would have the practical effect of determining whether or not the vesting day had already occurred, and the substance of the right of each beneficiary to enforce due administration of the Trust (and potentially other rights and liabilities of beneficiaries) may therefore be directly affected by the decision: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), rr 6.24, 7.9 and 7.12; Ashton v Pratt [2013] NSWCA 400 at [21]-[24].
The Trustee's legal representatives replied, indicating that no object of the Trust wished to object to the making of the declaration and order sought in the Summons.
The Trustee subsequently filed an affidavit of Ross Geoffrey Tomlinson sworn on 25 August 2020. That affidavit was read at the hearing on 27 August 2020.
Mr Tomlinson deposed that he was born on 16 March 1944 and is the Ross Geoffrey Tomlinson referred to in clls 2 and 4 of the Deed. He is the son of Athol Joseph Tomlinson referred to in cl 4 of the Deed.
If the declaration sought by the Trustee is not made in this proceeding, the vesting day will have occurred on 22 September 2001.
In his affidavit sworn on 5 June 2020, the Trustee deposed that, when he became aware of the apparent error in the definition of "vesting day", he sought the advice of counsel. The Trustee has annexed to his affidavit a copy of counsel's advice dated 24 February 2020. The advice is directed to the question whether the words "whichever shall be the shorter" in the definition of "vesting day" is an error and whether the Court would be likely to correct the error by reading those words as meaning "whichever shall be the longer".
I infer from the Trustee's affidavit, read together with counsel's advice, that until about early 2020, the Trustee had proceeded on the understanding that the vesting day did not occur until the longer of 30 years after the date of the Deed or twenty years after the death of the last survivor of King George VI's descendants living as at the date of the Deed (unless the Trustee appointed an earlier vesting day). The latter date has not yet passed. I infer that, since 22 September 2001, the Trustee has conducted himself on the basis that he holds the Trust fund on the terms of cl 2 of the Deed rather than on the terms of cl 4 of the Deed.
This is consistent with the evidence of Mr Tomlinson, who deposed that the only asset of the Trust is 10 ordinary shares in the capital of Ross G Tomlinson Pty Ltd (of which Mr Tomlinson is the sole director and secretary), and that those shares are held by the Trustee in his capacity as Trustee of the Trust.
If the declaration sought by the Trustee is not made, the vesting day will have occurred on 22 September 2001 and the Trustee will have held the Trust fund on trust for Mr Tomlinson since that date, there being no suggestion that the Trustee has made a determination under cl 4 of the Deed to hold the Trust fund on Trust for beneficiaries other than or in addition to Mr Tomlinson in specified proportions. In addition, any income that the Trustee has distributed to beneficiaries other than Mr Tomlinson since 22 September 2001 will have been distributed to them in breach of the trust under cl 4 of the Deed.
Accordingly, of the class of persons referred to in the definition of beneficiaries in the Deed, it is only Mr Ross Tomlinson whose rights may be adversely affected by the declaration sought by the Trustee.
In his affidavit sworn on 25 August 2020, Mr Tomlinson deposed that he is aware of the proceeding, he has read counsel's opinion annexed to the Trustee's affidavit, and he paid the filing fee for the Trustee commence the proceeding. The Trustee has also acted as Mr Tomlinson's personal solicitor since 1966. Mr Tomlinson deposes that he fully supports the proceeding. I understand by this that Mr Tomlinson supports the relief sought by the Trustee.
In those circumstances, I was satisfied that the beneficiaries' entitlement to enforce the due administration of the Trust did not require that they be joined as defendants to the proceeding, or otherwise be given an opportunity to be heard, before determining the Trustee's claim for declaratory relief: UCPR, rr 6.24, 7.9 and 7.12; Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50 at [61] (Leeming JA, Meagher JA and Tobias AJA agreeing).
As is evident from the terms of the relief sought (set out at [7] above), the Trustee seeks a declaration that the words "whichever shall be the shorter" in the definition of "vesting day" in cl 1 of the Deed should be read as "whichever shall be the longer period" (my emphasis). This relief is sought on the basis that there was an obvious drafting error in the Deed. The Trustee invokes the common law principles of construction, which permit the correction of obvious mistakes. The Trustee does not rely on the principles of rectification in equity.
The principles upon which a Court may rectify an instrument to correct an obvious mistake were restated by Leeming JA (with whom Payne and White JJA agreed) in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [6]-[10]. A court may only proceed to correct an obvious mistake if it is satisfied to a high level of conviction of two matters (at [8]):
"…(a) that the literal meaning of the contractual words is an absurdity and (b) that it is self-evident what the objective intention is to be taken to have been: see Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [117]-[119], approving National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600, where it was stated at [34]:
'Where both those elements are present ... ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning.'"
(See also Saxby Soft Drinks Pty Ltd v George Saxby Beverages Pty Ltd (2009) 14 BPR 27,213; [2009] NSWSC 1486 at [10], in a passage cited with approval in Harker-Mortlock v Commonwealth Bank of Australia [2019] NSWCA 56 at [43] (Meagher JA, Macfarlan and Brereton JJA agreeing)).
The Trustee submitted that the literal meaning of the definition of "vesting day" in cl 1 of the Deed as the earlier of either thirty years from the date of settlement of the trust or "the period of twenty years after the death of the last survivor of the descendants now living of his late Majesty King George VI" produced an absurd result because:
1. the word "shorter" does not make sense in a context where it operates in respect of two dates, followed by a power for the Trustee to appoint an earlier date. Having regard to that power, there is no need to provide two alternative fixed periods;
2. King George VI clauses were conventionally used to extend the life of discretionary trusts to the maximum extent possible whilst avoiding the trust being void for remoteness of vesting. In this regard, I note that the Deed was entered into before the Perpetuities Act 1984 (NSW) came into effect. It was submitted that it was plain that the intention of the King George VI aspect of the definition of "vesting day" was to provide an outer limit of the period before the Trust fund would vest; and
3. if the definition in cl 1 were to be read in accordance with its literal meaning, there would be no need for a reference to the date of the death of the last living descendant of King George VI because the Trust would vest in thirty years after the date of the Deed (or on such earlier date appointed by the Trustee) in any event.
The Trustee relied on the decision of Brereton J (as his Honour then was) in Saxby Soft Drinks Pty Ltd (supra) where a similar issue arose for determination. In that case, clause 1 of the trust deed provided that the trust would "expire the period of twenty-one years after the execution of this settlement or the death of the last survivor of the descendants now living of his late Majesty King George VI, which shall be the shorter [sic], or such earlier date as the trustees may at any time not earlier than one year after the execution of this settlement in writing or by oral declaration appoint."
The plaintiff sought a declaration that on the proper construction of the trust deed, the words "which shall be the shorter" in the definition of the vesting day in cl 1 should be taken to read as "which shall be the longer".
Brereton J granted the declaration sought by the trustees, concluding that there was an obvious drafting error. His Honour said (at [7]-[9]):
"7. In my view, it is plain that there is an error in the definition of the 'vesting day' and that the word 'shorter' was used erroneously when the word 'longer' or 'later' ought to have been used. This is so for a number of reasons. The first is that in a trust deed, a King George VI clause is conventionally used to provide maximum flexibility and duration for the trust by selecting a wide class of reasonably identifiable persons as lives in being to which a period of 21 years is then conventionally added to define the perpetuity period of a life in being plus 21 years.
8. Secondly, if the definition had the effect that the vesting day was the earlier of the period of 21 years from the date of execution or the period of 21 years from the death of the last survivor of the descendants now living of King George VI, then the reference to the descendants of King George VI would serve no purpose at all, as it would not extend the perpetuity period beyond the 21 years otherwise fixed in any circumstances, and there would be no point in having any reference to anything other than the period of 21 years.
9. Thirdly, if one were not to read the period of 21 years as related both to the execution of the settlement and to the death of the last survivor of the descendants of King George VI, so that the alternative to 21 years after execution was simply the date of death of the last survivor of the descendants now living of the said King, then the effect of the King George VI clause would be, quite anomalously, to abridge or potentially abridge (in the unlikely event of an early Royal calamity) the otherwise fixed period of 21 years, for no apparent purpose or utility whatsoever."
The decision in Saxby Soft Drinks Pty Ltd (supra) was considered by Judd J in Re McDonald Family Trust No 1 [2010] VSC 324 at [16]-[18], another decision upon which the Trustee relied. In that case, the trust deed defined the vesting day as:
"…the day upon which shall expire the period of 50 years after the execution of this Settlement or the death of the last survivor of the descendants now living of His Late Majesty King George VI whichever shall be the shorter or such earlier date as the trustees may at any time not earlier than one year after the execution of this Settlement in writing or by oral declaration appoint in accordance with the provisions of Clause 3(b) hereof to be the Vesting Day."
The plaintiff in that case contended, similarly to the Trustee in the present case, that this definition contained an obvious drafting error. His Honour accepted that submission. He said (at [16]):
"In my opinion the definition of 'Vesting Day' contains an obvious error. The trustee sought to correct the error as a matter of construction or by means of rectification. A plain reading of the definition would indicate that the word 'shorter' does not make sense in a context where it operates in respect of two dates followed by the expression of a power in the trustee to fix an 'earlier date'. In my view, the definition was intended to provide an outer limit, being the longer period measured by the two dates. The reference to 'last survivor' would hardly be employed were that not so."
His Honour referred (at [17]) to Brereton J's summary of the relevant principles concerning rectification of instruments by construction in Saxby Soft Drinks Pty Ltd (supra) before concluding (at [18]):
"I propose to adopt the approach taken by Brereton J in Saxby. There is plainly an error of expression in the definition of 'Vesting Date'. The word 'shorter' should be read and construed as if meaning the 'longer period'."
There is some ambiguity as to the basis upon which his Honour made the orders rectifying the definition of the vesting day in the trust deed. A fair reading of the passages above suggests that orders in the nature of the declaratory relief were made, but earlier in the judgment (at [4]) his Honour states that the trustee's application was brought pursuant to s 63A of the Trustee Act 1958 (Vic), a provision which has no analogue in New South Wales (see discussion in Cisera v Cisera Holdings Pty Ltd (2018) 98 NSWLR 747; [2018] NSWCA 286 at [69]-[71] (White JA, Bathurst CJ and Beazley P agreeing). Nevertheless, it is clear from the reasons above that his Honour considered that the trust deed ought to be rectified to reflect what was determined to be an obvious drafting error.
In my respectful opinion, the reasoning of Brereton J in Saxby Soft Drinks Pty Ltd (supra) and Judd J in Re McDonald Family Trust (No 1) (supra) is compelling and is applicable to the definition of "vesting day" in cl 1 of the Deed in this case. I am satisfied that the literal meaning of the words "whichever shall be the shorter" in that definition is absurd and that it is self-evident that the Settlor and Trustee intended that the vesting day would occur at the end of the period which was the longer of thirty years after the execution of the settlement or twenty years after the death of the last survivor of King George VI living as at the date of the Deed, unless the Trustee appointed an earlier date as expressly provided for in the definition of "vesting day". In my opinion, that intention is abundantly clear from:
1. the discretionary nature of the Trust established by the Deed, the rule against perpetuities as it applied as at the date of the Deed and the conventional use of King George VI clauses to which I have referred above; and
2. the fact that the Trustee had an express power to fix an earlier vesting day, which meant that it was unnecessary to define the "vesting day" by reference to the shorter of two fixed or ascertainable time periods.
The Trustee's costs of this proceeding were incurred in order to rectify this obvious mistake in the Deed so as to facilitate the execution and administration of the Trust in accordance with the Deed, properly construed. The Trustee has a right to be indemnified out of and exonerated from the assets of the Trust in respect of the costs of the proceeding: Trustee Act 1925 (NSW), s 59(4).
For the reasons above, I make the following declaration and order:
1. Declare that, upon the proper construction of the deed of settlement dated 22 September 1971 between Murray William Cole (as Settlor) and Ormonde Roger Butler (as Trustee), the vesting day defined in cl 1 of that deed is the day upon which shall expire the period of thirty years after the execution of the deed or the period of twenty years after the death of the last survivor of the descendants now living of his late Majesty King George VI whichever shall be the longer period, or such earlier date as the Trustee may at any time not earlier than one year after the execution of the deed in writing or by oral declaration appoint to be the vesting day.
2. Order that the plaintiff's costs of the proceeding be paid on an indemnity basis out of the estate of the trust established by the deed referred to in the above declaration.
[2]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 03 September 2020