This is an application to rectify the terms of a deed of trust. The plaintiff seeks a rectification order which would extend the latest possible vesting date of the trust by several decades. There is no defendant in the proceedings, but the application has been opposed by a contradictor appointed for that purpose.
The trust deed was executed in February 1976. The deed established a discretionary trust for the family of Mr Langley Alexander (known as "Lang") Walker. The trust so established is named the "LA Walker Family Trust" (the "Trust").
The parties to the trust deed were Mrs May Helena Hudspeth as Settlor and McRoss Development No 2 Pty Limited ("McRoss") as Trustee. Mrs Hudspeth was Mr Walker's aunt (his mother's sister). She died in 1976 or 1978. McRoss was a shelf company acquired by Mr Walker and his father to act as trustee of the Trust. Mr Walker's father died in 2011, and Mr Walker is now the company's sole shareholder. The company's name is now Walker Corporation Pty Limited and it is the plaintiff in the proceedings.
The trust deed is in conventional form. The beneficiaries include Mr Walker's family and the families of his descendants. The Trustee is to hold the trust fund until the vesting date of the Trust. The trust income is to be distributed among the beneficiaries in accordance with the Trustee's discretionary determination. Upon vesting, the Trustee is to hold the trust fund for such of the beneficiaries, and in such shares, as the Trustee may, in its discretion, determine. Default shares of income and capital among the beneficiaries are specified where no determination is made by the Trustee.
As is usual for discretionary family trusts of this type, the initial settlement sum was nominal ($100). But the Trustee is empowered to accept gifts of capital, to be held on the terms of the Trust. Over the years, Mr Walker has used the Trust as the vehicle for a very substantial property investment and development business. The assets of the Trust are, it appears, worth more than $100 million, and may be worth much more than that.
Currently, the beneficiaries among whom the Trustee may share the income and capital of the Trust are: Mr Walker; his wife, Mrs Suzanne Walker; their three adult children; their ten grandchildren (eight of whom are minors); two nominated charities; and Walker Group Holdings Pty Limited ("Walker Group Holdings"), a company controlled by Mr Walker. There are also wider classes of default beneficiaries, both for income and capital, who could benefit if no determination is made by the Trustee.
The trust deed defines the vesting date as:
the first to occur of the following three dates, viz:-
(i) the 31st day of December 2032
(ii) twenty one years after the date of the death of the last survivor of the lineal descendants born before and living at the date hereof of his late Majesty King George the Fifth, and
(iii) the date (if any) which the Trustee shall in its discretion appoint as the distribution date of this settlement.
Subclause (ii) of the vesting date is a "royal lives" clause, and I will refer to the period of time specified by it as the "royal lives period". As at the date of the trust deed, there were numerous living descendants of King George V. The royal lives period in the present case will extend at least until the 2060s. Under the terms of the trust deed, as currently framed, the Trust will therefore vest on 31 December 2032 under subclause (i) (unless the vesting date is brought forward by the Trustee under subclause (iii)).
Among the assets of the Trust are substantial land holdings at Appin, south west of Sydney, which Mr Walker hopes to develop. For this purpose, long-term financing will be required. Such financing will extend beyond 31 December 2032. The vesting of the Trust might create a problem with that. The trust deed permits the Trustee to amend the terms of the Trust. But this power of amendment does not extend to the vesting date. Hence, the present application.
[2]
Issues for determination
These proceedings were commenced by Summons on 1 November this year. They have been given an expedited hearing.
The Trustee, as plaintiff, is the sole party to the proceedings. As I have mentioned, the Settlor, Mrs Hudspeth, is dead. There is no opposition to the application from any of the beneficiaries. The Trustee's solicitors have obtained letters consenting to the order sought from the adult primary beneficiaries and Walker Group Holdings.
When the proceedings came before me for initial directions, I raised the question of how they had been constituted, and, in particular, that there was no contradictor. Later, the Trustee's solicitors informed me that the Trustee would undertake to meet the costs of Mr Bannan of counsel, acting as contradictor.
In his written submissions, Mr Bannan stated that he considered that his duty as contradictor was to put before the Court any arguable ground for refusal of the application. Mr Bannan's submissions identified two grounds of opposition. The first was that the evidence did not, on a proper understanding of the principles which apply to applications for rectification, justify the making of the order sought. The second was the delay of the Trustee in making the application.
[3]
Chronology
Mr Walker was born in July 1945. In 1964, he went into business with his father, Mr Alexander Henry Walker, as an earthmoving and excavation contractor. Mr Walker was then 18 or 19. His father, who had been born in February 1910, was 53 or 54.
The Walkers' business later expanded into property development. By the early 1970s, it had become large and prosperous. Through a friend, Mr Walker came into contact with a Sydney firm of solicitors, Law & Milne, and that firm was retained by the Walkers to act in conveyancing and commercial matters for them. Law & Milne also arranged for the establishment of companies through which the Walkers operated their businesses. The Walkers used either shelf companies previously incorporated by Law & Milne for use by clients, or companies freshly incorporated for them by Law & Milne.
In the second half of 1975, each of the Walkers decided to establish a discretionary trust for his family. This was the result of advice given by Mr James Gordon (known as "Jim") Kearns, a partner of Law & Milne. It was decided to use McRoss, which was then a Law & Milne shelf company, as the trustee for Mr Lang Walker's trust.
McRoss had been incorporated in November 1973. Its directors were Mr Kearns and a Mr Hughes, who seems also to have been a partner of Law & Milne. Mr Kearns and Mr Hughes each held one ordinary share in the company. In October 1975, Mr Hughes' share in the company was transferred to Mr Walker's father. Mr Kearns agreed to hold his share on trust for Mr Walker. Mr Walker and his father were appointed as directors of the company, and Mr Hughes resigned. Mr Kearns, however, remained a director.
The trust deed is dated 5 February 1976. The signature of Mrs Hudspeth as Settlor was witnessed by Mr Laurence Bridgement. Mr Bridgement was an accountant employed by one of the Walkers' companies. The deed was executed under the seal of McRoss as Trustee. Mr Walker and his father, as directors, signed as witnesses to the affixation of the seal.
In about 1977, Mr Kearns established his own firm, which was called James G Kearns & Newby. Mr Kearns continued to act for Mr Walker until June 1985, when, for reasons not explained in the evidence, Mr Walker lost confidence in him. Seemingly at Mr Walker's request, Mr Kearns transferred the share which he held in the Trustee to Mr Walker and resigned as a director.
The main asset of the Trust at that point was a shareholding in a company which carried on the Walkers' property development business. That company was floated in 1994. The Trustee received $136 million for its shares. Since then, according to Mr Walker, its assets have "grown substantially".
It seems that Mr Walker had nothing to do with Mr Kearns after they parted ways in 1985. The break between them may have been accompanied by personal estrangement. According to Mr Walker, it was only at his wife's request that he visited Mr Kearns in hospital shortly before Mr Kearns died of cancer. That was "about ten years ago".
According to Mr Walker, he was aware by 2016 that the Trust would vest on 31 December 2032. But it was not until earlier this year that this "came into focus" for him as an issue. The directors of the Trustee formally resolved for it to make this application for rectification on 12 October.
[4]
Amending deeds
Over the years, the trust deed has been amended on ten occasions pursuant to the power of amendment reserved to the Trustee under the deed. The amendments took place on the following dates:
1. 5 October 1984;
2. 5 July 1985;
3. 15 September 1985;
4. 22 June 1995;
5. 18 May 2001;
6. 5 June 2001;
7. 4 November 2003;
8. 28 June 2007;
9. 21 December 2018; and
10. 12 October 2022.
Each of these amendments was effected by deed. Amending deeds (1) to (7) were executed under the seal of the Trustee, witnessed by a director and secretary. Amending deeds (8) to (10) were executed on the Trustee's behalf by a director and secretary pursuant to s 127(1)(b) of the Corporations Act 2001 (Cth). Each amending deed bears a signature which appears to be that of Mr Walker as a signatory.
Amending deeds (1) and (2) do not have a cover sheet, but appear to have been prepared by a solicitor. Amending deed (1) dates from October 1984, when Mr Kearns was still acting for Mr Walker. I think that it is safe to assume that Mr Kearns prepared that amending deed. Amending deed (2), for reasons given below, seems not to have been.
Amending deeds (3) to (7) were all prepared by well-known commercial law firms in Sydney. Amending deed (3) was prepared by Norton Smith & Co; amending deed (4) by Rosenblum & Partners; amending deed (5) by Corrs Chambers Westgarth; and amending deeds (6) and (7) by Blake Dawson Waldron.
Amending deed (8) was prepared by a solicitor corporation named SML Legal Pty Limited. Amending deed (9) has a front sheet, but the name of the firm which prepared it does not appear. Amending deed (10) was prepared by Speed & Stracey, the Trustee's solicitors in these proceedings. It was executed on 12 October this year, which is the same date on which the Trustee resolved to bring this application.
Amending deed (1) inserted a new clause 12(t) giving the Trustee express power to give guarantees and to provide security in support of such guarantees. Amending deed (2) inserted a new clause with the same numbering and having the same effect. The recitals in amending deed (2) did not refer to amending deed (1). This suggests that amending deed (2) may have been prepared by someone other than Mr Kearns, who presumably prepared amending deed (1).
Amending deed (2) contained some other amendments apparently designed to clarify the Trustee's power to borrow. It also contained a confirmation clause which stated, subject to the amendments, the Trustee "hereby confirms and ratifies" the trust deed.
Amending deed (3) likewise inserted additional provisions to clarify and expand the Trustee's powers of borrowing. The deed also introduced two clauses restricting the exercise of certain powers of the Trustee under the trust deed. These clauses provided that, while the Trustee was indebted to the Australia and New Zealand Banking Group Limited, the Trustee could not, without the Bank's consent, exercise certain powers. One of these powers was the power to bring forward the vesting date (see sub-clause (iii) of the vesting date definition, quoted above). The power to distribute capital in advance of the vesting date was similarly restricted.
Amending deed (4) inserted provisions clarifying the Trustee's powers to "stream" imputation credits when distributing the annual income of the Trust among the beneficiaries, and confirming power to distribute gains as part of that income. The amending deed also made a correction to the trust deed. As originally executed, the trust deed gave to "the appointor" a discretionary power to nominate additional beneficiaries. But the deed did not make any provision for an appointor. The amending deed noted this in its recitals and replaced the reference to the appointor with a reference to the Trustee.
Amending deed (5) inserted additional express powers for the Trustee, which enabled the Trustee to deal with property owned by the Trust (such as leasing). It also rewrote the clause in the trust deed giving the Trustee a right of indemnity out of the assets of the Trust.
Amending deed (5) also contained a confirmation. This stated that the Trustee "acknowledges and agrees that the trust deed as varied by this document is, and continues to be, in full force and effect".
Amending deed (6) introduced additional provisions concerning streaming of trust income distributions, and amending deed (7) inserted a further express power for the Trustee to charge assets of the Trust in support not only of borrowings by the Trustee, but also of borrowings by the other parties.
Amending deeds (8) and (9) each dealt with tax issues. Amending deed (8) contained further provisions about streaming. Amending deed (9) inserted a provision requiring that no beneficiary be a "foreign person" for the purposes of tax legislation.
Amending deed (10) was clearly the result of a detailed review of the terms of the trust deed. The amending deed made numerous changes, and, in particular, changes to the provisions governing the definition of beneficiaries and the default order for distribution. It is not necessary, for the purposes of this judgment, to summarise these provisions in any detail.
In summary, it appears that amending deeds (1), (2), (3), (5) and (7) would have been prompted by a need to meet lenders' requirements for the purposes of financing activities by the Trustee. Amending deeds (4), (6), (8) and (9) appear to have been generated as a result of taxation considerations relating to distributions of income. That is an aspect of amending deed (4) as well, but that amending deed also contained a correction to the rather glaring error in the original trust deed about the "appointor".
[5]
Other documentary evidence
Mr Kearns' files for work done on the establishment of the trust and variation of the trust deed in 1984 were not in evidence, and it seems very likely that those files have long since been destroyed. There was, however, no evidence of any searches having been undertaken to find out exactly what happened to Mr Kearns' firm and to confirm the destruction of the files.
The Trustee's evidence referred to a decision of this Court involving a discretionary trust deed similar to the present one. The proceedings began in 1989, and came before Young J in September 1990 (see Hills v Kearns (Supreme Court of New South Wales, Young J, 4 September 1990)). His Honour's judgment was the subject of an appeal, reported as Kearns v Hill (1990) 21 NSWLR 107.
Neither the published version of the first instance judgment, nor the report of the Court of Appeal judgment, gives particulars of the parties to the proceedings. But Law & Milne acted for the defendant trustees at first instance, and the suggestion was that the Kearns who was the first defendant was Mr Jim Kearns, and it was reasonable to suppose that he had been responsible for drafting the trust deed, which was dated December 1973. The first instance judgment records that the trust deed contained a definition of the trust's vesting date in the same form as was used in the present case, and the fixed date in that definition, 31 December 2032, was also the same.
Attention was drawn in the Trustee's evidence to comments by Young J at first instance and by Meagher JA on appeal about how badly drawn the deed in that case was. The purpose of this was, apparently, to reflect on Mr Kearns' abilities as a solicitor, on the assumption that he was responsible for the drafting of that deed. It was also suggested, from the use of the 31 December 2032 date in both deeds, that Mr Kearns must have used the earlier deed as a precedent (without instructions, it was suggested) when drafting the present trust deed.
I will come back to this evidence below, but I should say immediately that it is far from clear to me that Mr Kearns was the party referred to in the 1990 proceedings. From the form of the declaration made by the Court of Appeal, it appears that there were originally three individual trustees, and they did not include Mr Kearns. It would not be usual for a solicitor to act as one of the trustees of a discretionary family trust of this type. The proceedings took place seventeen years after the deed was executed, and more than twelve years after Mr Kearns had left Law & Milne. I think that there is no reason to infer that Mr Kearns drafted the December 1973 trust deed. He may have used it as a precedent, but, whether he in fact did so, and, if so, what inferences can be drawn from that in the present case, are quite different things.
There was further evidence from the Trustee (in the form of a court record) that, in December 2002, Mr Kearns was convicted of offences under the Crimes Act and the Corporations Law and sentenced to imprisonment for six years. The non-parole period was four and a half years. Also in evidence was a report in the Sydney Morning Herald about Mr Kearns' conviction, and two appellate decisions arising out of that conviction. One was Mr Kearns' appeal to the Court of Criminal Appeal from the conviction itself. The other was his appeal against a decision in the District Court refusing a review of the conviction about ten years later (after the sentence would have been served).
The newspaper report and the appellate judgments provided some further details about the allegations which resulted in the criminal proceedings against Mr Kearns. The case against him was apparently one of embezzlement. The Court of Criminal Appeal, in the second appeal, also referred to adverse findings made against Mr Kearns' credit at first instance. I assume that the purpose of this evidence was likewise to reflect on Mr Kearns' conduct as a solicitor.
Although Mr Bannan did not take the point, I was left unsure about the extent to which I can take this evidence into account, given s 91(1) of the Evidence Act 1995, which provides that evidence of a judgment "is not admissible to prove the existence of a fact that was in issue in that proceeding". The newspaper report, of course, is a further level of hearsay. But, in the end, I do not think that the admission of this evidence would make any difference.
In evidence also was a July 2015 paper by Mr AH Slater QC about the taxation treatment of discretionary trusts. Mr Slater stated that discretionary trusts with a vesting date providing for the trust to vest after a fixed period, or a royal lives clause, whichever was the earlier, were commonplace. That observation is confirmed by the number of published judgments concerning trust deeds in this form, which include Hill v Kearns; Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004; Public Trustee v Smith [2008] NSWSC 397; Cisera v Cisera Holdings Pty Ltd (2018) 98 NSWLR 747; and the three recent rectification cases to which I refer at [76] below.
[6]
Affidavit evidence
The main affidavit in support of the application came from Mr Walker. It had been sworn at the end of June this year, three months before the proceedings were begun. Later, following the filing of the submissions by Mr Bannan, a supplementary affidavit from Mr Walker was filed. No application was made by Mr Bannan at the hearing to have Mr Walker attend for cross-examination.
The application was also supported by affidavits of Mr Malcolm Robert Gordon Stewart; and Mr Mark George Wilkinson. Mr Stewart is the solicitor for the Trustee in these proceedings and Mr Wilkinson is a co-director of the Trustee with Mr Walker. Mr Stewart's affidavit and Mr Walker's affidavit went to matters of record and were not controversial.
In his June affidavit, Mr Walker explained the decision to establish the Trust in the following way:
12. In about 1975, I had a number of discussions with Mr Kearns and my father about how our business and family interests could best be structured, given our expanding business. Mr Kearns suggested to my father and me that we should give consideration to the establishment of family trusts that would provide protection for our business interests and certain tax savings. He advised us that he could help each of us to establish a discretionary trust to hold our respective assets and explained how that type of trust worked.
13. Following those discussions, I instructed Mr Kearns to establish a discretionary trust for me and my family (and a second discretionary trust for my father), the intent being that each trust would endure for the benefit of our family and the protection of our assets.
Later in the affidavit, Mr Walker stated:
33. I have no recollection of Mr Kearns advising me in our discussions during 1975 and 1976 that the Trust had to terminate in 2032 if it had not terminated earlier, and I do not think he did. I thought at the time that the Trust could endure indefinitely in the same way as a company.
34. Had I understood on or before 5 February 1976 that the Trust Deed provided for the vesting of the Trust in 2032, I would have enquired whether the Trust could be structured so as to continue for as long as possible, if not indefinitely. I certainly did not have any intention that the Trust was to be brought to an end on a specific date or in 2032, and I did not realise that this was the effect of the Trust Deed document provided to us by Mr Kearns at the time that I signed it. The inclusion in the Trust Deed of a vesting date in 2032 was a mistake.
Mr Walker noted in his affidavit that Mrs Hudspeth's name was misspelt in the trust deed, as was the street name in which she lived and where the Walkers' offices were located. Mr Walker also referred to the amendment of the trust deed effected by the deed prepared by Rosenblum & Partners, which replaced the meaningless reference to the appointor with a reference to the Trustee. He stated that he had wished to nominate a company controlled by him as an additional beneficiary, and that advice had been sought on this by "the Trustee" in early 1995. The reference to the appointor (which Mr Walker characterised as "another mistake in the deed originally drafted by Mr Kearns") "became apparent from a review" of the trust deed.
Mr Walker did not explain how he failed to identify these mistakes when the deed was signed in 1976. The wording of what he said in his affidavit about the June 1995 amendment suggested that others might have been involved on behalf of the Trustee, but he provided no detail. Nor did his affidavit say anything about any of the other amending deeds.
Mr Walker continued:
46. In about 2016 I was reviewing my estate plan and a succession plan for my business interests. I was aware that the Trust was to vest at the end of 2032 but did not fully appreciate the implications of this because at the time I anticipated the Trust to have completed the development projects it had on hand and distributed the proceeds to the beneficiaries of the Trust by 2032.
But then:
47 For at least the last 20 years the Trustee has been acquiring rural property around Appin …with the intent of rezoning the land and then undertaking a major master-planned community involving the development of approximately 13,500 residential lots. The Trustee has been working to achieve the rezoning for fifteen years and for various reasons that process has taken far longer than I ever anticipated. …
…
49. I only came to appreciate in early 2022 the full extent of the difficulties the 2032 Trust vesting date could create for my business and the Trust. The issue particularly came into focus for me with the realisation that the development and sale of all the residential lots that comprise the Appin master-planned community will not be completed until after 2032. Indeed I now expect that the full development and sale of the Appin land is not likely to be completed until 2046. If the Trust sells 600 lots per annum, which I think is a reasonable estimate, I expect there to be 8,700 unsold lots on 31 December 2032.
50. The Trustee has currently provided its Appin and Wilton land as security for various finance facilities which will expire well before 2032. However, the Trustee will require finance facilities to carry out development of the Appin land and if the Trust is required to vest in 2032, this will be of great concern to any financier providing such finance.
51. It is likely that finance will not be provided beyond the vesting date of the Trust, and possibly not at all. As indicated above, at the time the Trust was set up it was my understanding that the Trust would have an indefinite life, as if it were a company, unless voluntarily terminated earlier. It was not brought to my attention by Mr Kearns, or anyone else that the Trust had a limited life and I believe the inclusion of the vesting date in 2032 was a mistake.
In his November supplementary affidavit, Mr Walker stated, by way of clarification to paragraph 12 of his June affidavit, that all of the instructions for his trust were given by him to Mr Kearns. He also returned to the question of his awareness of the vesting date. He stated:
9. I refer to paragraph 46 of the June Affidavit. The occasion in 2016 that I refer to in that paragraph was the only specific time I recalled when I swore the June Affidavit, that during the course of reviewing my estate and business succession plan it was drawn to my attention that the Trust Deed contained a clause providing that the vesting date of the Trust was in 2032. I cannot now specifically recall whether or not I ever noticed or was made aware of this provision in the Trust Deed prior to 2016, but if that occurred I was not aware of the implications and it raised no concern on my part. I have been aware since the creation of the Trust that the beneficiaries include all my lineal descendants, which I assumed could potentially extend to several future generations. This accorded with my understanding that the Trust could continue indefinitely, so long as I had lineal descendants, unless voluntarily terminated at a time of the Trustee's choosing.
10 As set out in paragraph 49 of the June Affidavit, I did not fully appreciate the implications of the inclusion of a vesting date of 2032 in the Trust Deed until earlier this year, following which I commenced taking steps to correct that position which have culminated in this proceeding.
[7]
Application for rectification order
The Trustee's application is to rectify the definition of "vesting date" as shown below:
the first to occur of the following three two dates, viz:-
(i) the 31st day of December 2032
(ii) twenty one years after the date of the death of the last survivor of the lineal descendants born before and living at the date hereof of his late Majesty King George the Fifth, and
(iii) the date (if any) which the Trustee shall in its discretion appoint as the distribution date of this settlement.
[8]
Requirements for rectification
General principles: The decision of the Court of Appeal in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 was agreed between the parties to state the applicable principles for me to follow. At page 340C-F of that judgment, Sheller JA, with whom Mahoney AP and McLelland AJA agreed, said:
Essential to relief by rectification or reform of a document … is mistaken expression of the true agreement. The plaintiff must prove that there was disconformity between the intention and the written instrument and that the intention continued to the time of execution of the instrument. The plaintiff must displace the hypothesis, arising from the execution of the written instrument, that it expressed the true intention. Proof sufficient to displace this hypothesis may be easy or difficult or impossible. Such proof may be more difficult, in some circumstances impossible, if the words of the instrument are purposely used or indicate that the parties or party no longer intended to give effect to the whole of the antecedent intention. Careless copying is one thing. Omission of some words of limitation necessary to achieve the intention another. Mistake as to the legal effect of the words used another. The proved intention of the parties or party may be equivocal or too general or not sufficiently exact or precise to found relief. But if the claimant convinces the Court that the instrument does not conform with the intention of the parties or of the party which made it and the intention is clear and precise and can be achieved by the language of an order for rectification, relief should be available.
Cases on rectification of family trust deeds: The earliest authority to which I referred was the judgment of Kekewich J in Bonhote v Henderson [1895] 1 Ch 742. That case concerned a settlement made by two sisters in favour of two of their nieces, Miss Anna Maria Henderson and Miss Emily Henderson. The trustee of the settlement was the nieces' brother, Mr John Henderson, who was a Chancery barrister. The settlors were the plaintiffs in the proceedings, and Mr Henderson was the (nominal) defendant.
The deed of settlement was executed in 1880. It was executed at the same time as a deed of settlement by the settlors in favour of another sibling, Mrs Mary Wilson. Both deeds were prepared by the settlors' solicitor, Mr Dawes. In preparing the deeds, Mr Dawes consulted Mr Henderson in a non-professional capacity (Mr Henderson was close to his aunts and acted as their advisor).
The deed of settlement which was the subject of the application gave each niece the income from her settlement sum for her lifetime. On her death, if she were to have any children, the beneficial interest in her settlement, both as to capital and income, was to go to them. If she were to die without leaving any children, and she survived her sister, the beneficial interest was to go to such persons as she might by will appoint, or to her next of kin in default of appointment. But if her sister survived her, the sister was to have the income for life and on her sister's death the beneficial interest was to pass to the sister's children or, if the sister had no children, to such persons as the sister might by will appoint, or in default of appointment to the sister's next of kin.
The settlement in favour of the nieces' married sister Mary was different. Mary was to have the income on the settlement sum for her life. After her death, the beneficial interest, both as to capital and income, was to be held upon trust for such persons as she might by will appoint, and, in default of such appointment, upon trust for her children, but, if she left no children, to her next of kin.
The rectification application was made in 1894, fourteen years after the settlement had been executed. The settlors alleged that they had intended each niece, in the event that she did not have children, to have an absolute power of appointment over the assets of her trust, and not for the trust assets to pass to the control of her surviving sister. Rectification of the deed of settlement was sought accordingly.
Documentary evidence showed that Mr Dawes attended on the settlors on 25 June 1880 to take instructions. Mr Dawes then prepared a draft which he sent to Mr Henderson, asking him to look through and see whether the draft was in accordance with the settlors' views. On 12 July, Mr Henderson wrote two letters to Mr Dawes. The first returned the drafts with some amendments, and suggested he get the settlors' instructions. The second letter stated that Mr Henderson had just discussed the drafts with the settlors; they approved of the alterations in Mary's settlement and the settlement on Anna and Emily would remain as settled by Mr Henderson unless Mr Dawes thought it advisable to consult the settlors on Mr Henderson's alterations before execution. The deeds were executed on 15 July.
A joint affidavit was filed for the settlors and an affidavit was also filed by Mr Henderson. There was no evidence from Mr Dawes, who had died in the meantime. Cross-examination of the settlors was not possible, because they were too elderly and infirm. Mr Henderson was not required for cross-examination.
The settlors' affidavit stated that they had given instructions to Mr Dawes that the settlements in favour of their nieces should give each of them the income from the relevant settlement sum for life, and, after death, to their children, or, if they had no children, to such persons as they might by will appoint. They stated that they never gave any instruction to Mr Dawes that, if one unmarried niece were to die without leaving children, the other was to receive the income and a testamentary power of appointment over the income and capital (as the deed ultimately provided). They stated that they did not discuss this with Mr Henderson either. At the time of signing the deed, they believed that it had been prepared in accordance with their initial instructions to Mr Dawes.
The drafts sent by Mr Dawes to Mr Henderson and returned by Mr Henderson had, it seems, not survived. It seems to have been suggested on behalf of the plaintiffs, however, that the wording which gave the surviving niece control of the other's trust had been introduced by Mr Henderson.
In his affidavit, Mr Henderson stated that he could not remember whether he had noticed that his amendments had had that effect. But he "felt perfectly certain" that he had never discussed the point with the settlors or had given them any advice upon them. He also "felt sure" that, between the time he altered the draft and the time the deed was signed, he had not explained to the settlors how the trusts would work out in that event, and that this was not something that had been present to his mind.
Kekewich J said, at 748-9:
… it is obvious that the Court must approach the exercise of [the rectification jurisdiction] with caution at least equal to that required in dealing with the investigation of bargains; and the difficulty is necessarily increased by the circumstance that in the nature of things the Court cannot have the same advantages of criticism and opposition.
If there are documents, such as written instructions, evidencing the intention of the parties, the course may be clear; but if that intention rests on statements of settlors made, perhaps, long after the date of the deed, when haply precise memory is wanting and circumstances have changed, it behoves the Court to act warily.
It may be too much to say that no effect is to be given to a statement on oath that if the settlor had known the deed to be what it is he or she would not have executed it. But the operation of the human mind is so complex, so easily swayed first by one motive and then by another, that I hesitate to attribute much effect, and I decline to attribute cogent force, to the belief and opinion - for really it is no more - that something would or would not have been done in years gone by in possible events which did not in fact occur.
His Lordship observed that Mr Henderson had clearly given the form of the deeds close and careful attention. It was pointless to go into previous instructions, because the specific question had not at that stage arisen. Mr Henderson's evidence of the events of 12 August was, understandably, not precise, but that left a gap in the evidence which could not be filled.
His Lordship concluded that the application had to be refused. His Lordship said, at 751-2:
Is it possible for me to say that the [settlors] did not assent to the settlement as altered by [Mr Henderson], or to hold that they are now entitled to have it rectified according to what they state their intention to have then been, though it was in nowise expressed? It is possible, and indeed probable, that they did not thoroughly understand how the provisions of the settlement would or might work out, and even careful explanation might have failed to make them grasp the possible results.
What I think most likely is, that they were content to adopt and act on Mr Henderson's advice, and to believe that the settlement was best in the form into which he had altered it.
Applications to rectify a deed of settlement failed for similar reasons in Fredensen v Rothschild [1941] 1 All ER 430 (Bennett J); Van Der Linde v Van Der Linde [1947] Ch 306 (Evershed J); and Tankel v Tankel [1999] 1 FLR 676 (Park J). In Tankel, Park J said (at 678):
I can only order [rectification] if I am satisfied that the document which was executed differed by reason of some mistake from that which the settlor intended should be executed. It is not enough for me to consider, as I do, that it would have been better if the settlor had executed a document which was from the outset in the form to which I am now requested to change it. Nor is it enough for me to conclude that if the settlor's intention had been drawn to the actual terms of the document which was executed, and he had been asked whether he would rather have them changed, he would have said that he would.
Stephenson v Stephenson [2009] WTLR 1467 was also an application to rectify a deed of settlement. In that case, the application was supported by evidence of a mistake from the solicitor who had prepared the deed, and this evidence was supported by a file note. Mr J Jarvis QC, sitting as a judge of the Chancery Division, stated that the evidence to support rectification had to be compelling, but, in the circumstances of the case, it was.
In this Court, there have been a number of decisions concerning trust deeds which contain a clause of the type used in the present case, where an attempt has been made to extend the operation of the trust beyond the fixed date nominated in the vesting date definition.
The first of those to which I was referred was Stein v Sybmore Holdings Pty Ltd. In that case, JC Campbell J upheld an application by sanctioning a departure from the written terms of the trust under s 81 of the Trustee Act 1925. In passing, he dismissed the possibility of rectification (at [67], citations omitted):
A trust deed can be rectified if it is shown not to accord with the intentions of the person or persons who declared the trust. I am satisfied that the Trust Deed is not what Mr Stein [the appointor, on whose instructions and for whose family the trust had been established] wanted (assuming it is his intention that matters, or that his intention should be attributed to the settlor). However rectification requires not only proof that the document executed was not what was intended, but also proof of what was intended, with sufficient certainty to enable the Court to make an order which states the words that need to be deleted from, and/or included in, the instrument to give effect to the actual intention. That order is then endorsed on the instrument that is to be rectified. Even if I inferred that Mr Hay [Mr Stein's accountant, who arranged for the establishment of the trust] had the same intention as Mr Stein, I am not satisfied that there is cogent enough proof of what was required to enable an order to be drafted. Hence the Deed cannot be rectified.
Similarly, White J (as his Honour then was) in Public Trustee v Smith stated at [71] that, before equity will rectify a mistaken instrument, there must be clear and convincing evidence before the Court so as to enable it to "determine both the substance and the detail of the precise variation to be made".
More recently, this Court has dealt with three applications for the rectification of discretionary trust deeds in which the vesting date was defined in the same manner as in the present trust deed, and rectification was sought in the same manner, and on substantially the same grounds, as in this case (Sanwick Pty Ltd v Kalyk [2016] NSWSC 100 (Stevenson J); Re CE Brenchley Family Trust [2019] NSWSC 1602 (Sackar J); and Re Hardi Family Trust [2021] NSWSC 1584 (Sackar J)). Each of these applications was successful, but in none of them was there any contradictor to the relief sought.
Incidentally, the decision of JC Campbell J in Stein was effectively overruled by the Court of Appeal in Cisera v Cisera Holdings Pty Ltd, which, in a case involving similar facts, decided that s 81 of the Trustee Act was not available. This is not, of course, directly relevant to the issue which I have to decide, although it may provide some explanation of the Trustee's decision in the present case to proceed by way of rectification.
Significance of royal lives clause: There was an undertone to the Trustee's submissions that the selection of a fixed date in the definition of the vesting date did not make a great deal of sense. But I think that any such thought is dispelled if one considers the definition in the light of the then-perpetuity rules which applied in New South Wales. For convenience, I repeat what I said at first instance in Cisera v Cisera Holdings Pty Ltd [2017] NSWSC 960 at [78]-[79]:
… the Perpetuities Act 1984 (NSW), which modernised the rule against perpetuities, had not been enacted when the Trust Deed was drawn up. At that time, it was not open to suspend the vesting of a trust interest by reference to any fixed period which exceeded twenty-one years. To achieve a longer suspension required reference to a life or lives in being (plus, if desired, up to a further twenty-one years thereafter).
If the intention had been for the vesting date to be deferred for as long as possible, the royal lives period would have been used on its own. In my opinion, it is clear that the royal lives period was not intended to define the maximum period before the vesting of the beneficiaries' interests. It was there as a backstop so as to ensure, with as much certainty as was possible, that it would be the fixed fifty year period [the trust was established in 1974, and the fixed date specified in the vesting date definition was in 2024] which would determine the vesting date (unless the Trustee should exercise its discretion to bring the date forward). Seen in this way, the fifty year period was not an accident or an irrelevancy; rather, it represented the maximum period of time which those who drafted the Trust Deed actually wished to elapse before the vesting date.
In Hill v Kearns, Young J apparently saw things the same way. His Honour stated, at 2:
The scheme of the trust was that there would be a vesting date which, subject to provisions inserted to make sure the modern rule against perpetuities was not infringed, would be 31 December 2032.
The phrase "provisions inserted to make sure the modern rule against perpetuities was not infringed" clearly enough refers, I think, to the use of the royal lives clause in the vesting date definition.
Whose intention is relevant: In the English cases to which I refer above, it was the settlor's intention which was treated as relevant. That was natural when, in each case, the trust deed involved the settlement of valuable property belonging to the settlor. But I agree with Sackar J in Re Hardi at [19] that there is no inflexible rule: the identification of the party or parties whose intention is relevant depends upon the circumstances.
It is, I think, important to remember that a deed of settlement is not a deed poll; it is a two-party instrument. The trustee, by entering into the trust deed, accepts obligations which are potentially onerous. In theory, both the settlor and the trustee have their own interests in the bargain, and there could be arms' length negotiations about the terms of the deed.
Usually, the settlor of a "modern discretionary trust" (the description used by Brereton JA in Baba v Sheehan [2021] NSWCA 58 at [4]) is brought in just to sign the trust deed and thereafter has nothing further to do with the trust. In such a case, in the absence of any evidence to the contrary, the settlor would usually be assumed to have intended whatever the other party to the deed (i.e., the trustee) intended. Thus, the relevant intention would be that of the trustee.
As Brereton JA explained in Baba, a modern discretionary trust deed usually provides for the person who is responsible for the establishment of the trust, and whose family will benefit from it, to be made the appointor under the deed, with a power to remove the trustee and thereby exercise effective control over the trust. Brereton JA described the appointor under such a trust deed as the "true settlor" (see at [4]). This was in the context of a challenge to the exercise of an appointor's power to replace the trustee.
It was suggested in argument that Mr Walker was the "true settlor" in the present case, and that it was therefore his intention which was relevant. I have some reservations about this suggestion. Where someone gives instructions for establishing a trust (which, for reasons already given, would ordinarily be instructions on behalf of the trustee), that person's intention may, through the trustee, be indirectly relevant. But I find it difficult to see how the intention of such a person can be directly relevant, and displace the actual parties' intentions, for the purposes of rectification.
The question of intention is also complicated where a solicitor is involved. That can happen in two ways.
First, the client's intention may have to be filtered through the solicitor's advice as to what is possible. The client may initially wish to achieve a particular result, but there may be legal obstacles to doing so, upon which the solicitor will have to advise. In this way, the solicitor's perception of how the trust deed needs to be worded may become incorporated into the client's ultimate intention.
The second possibility is delegation. Counsel for the Trustee accepted that, in principle, where the wording of an agreement is delegated to an agent, then, within the area marked out by the delegation, it is the agent's intention which is relevant, not the principal's. Where a solicitor is acting, delegation is common, especially on clauses that are, or are thought to be, "technical" or "boiler plate". Unless such provisions are the subject of express instructions from the client to the solicitor, it will usually be the solicitor's intention which will be relevant for the purposes of rectification.
Application of principles: I turn now to the evidence in the present case. I will start with Mr Walker's intention.
On Mr Walker's evidence, the preparation of the deed involved four steps:
1. Mr Kearns proposed the idea of a discretionary trust to Mr Walker, and explained the perceived advantages in establishing such a trust;
2. Mr Walker decided to adopt the idea and told Mr Kearns to go ahead;
3. Mr Kearns, or someone working for him, prepared the trust deed, and obtained the particulars to be included in it; and
4. Mr Kearns presented the trust deed to Mr Walker who, along with his father, executed it.
I have set out above the relevant passages from Mr Walker's affidavits. His description of the circumstances in which the original trust deed was prepared and signed are conclusory, and lack detail. Mr Walker does not say how many conversations or telephone calls he had with Mr Kearns, what was said, and what discussions he may have had with anyone else (including his father, in particular) in the course of the process. Nor does he say whether or not he read the deed, or a draft of it, or what Mr Kearns told him, if anything, about its contents.
These details are, of course, critical to the resolution of the present application. And it is not just a question of knowing what Mr Walker believed about how a discretionary trust would work. Presumably, the process involved some delegation of the drafting to Mr Kearns. The question is how far that delegation went. That depends upon the precise instructions which Mr Walker gave Mr Kearns about drafting the deed. This is not even addressed in the evidence.
All Mr Walker does say is that he understood that the trust would last indefinitely, like a company. But that was not legally possible. It is difficult to see any plausible, let alone compelling, explanation for how Mr Kearns could have told Mr Walker that the trust would work that way. None of the (inferential) criticisms of Mr Kearns' drafting come close.
The lack of detail in Mr Walker's affidavits is not at all surprising after more than 46 years. I am sure that he has sworn his affidavits in good faith. But their form does not inspire confidence that what appears in them is the product of actual recollection, rather than reconstruction. It is difficult to think of a case calling more strongly for caution in accepting witness evidence about past oral dealings (see Watson v Foxman (1995) 49 NSWLR 315 at 318-19 per McLelland CJ in Eq).
There are many possibilities which are consistent with the documentary evidence. Mr Kearns may have told Mr Walker that the deed was not perpetual, but would vest (if not brought forward) at a very distant time in the future, without specifying that time, and Mr Walker may have interpreted that as being perpetual. Another is that Mr Walker may have said he wanted the trust to be perpetual, Mr Kearns responded by saying that that was not possible and Mr Walker then accepted the fixed date. Another is that Mr Walker delegated the drafting to Mr Kearns in such a way as to leave the terms of the vesting date to him. No doubt other possibilities could be devised. The point is that the Court must be positively satisfied Mr Walker has not simply forgotten what really happened.
Mr Walker's evidence is also very limited about subsequent occasions on which the terms of the deed came up for consideration. We know from the amending deeds that the terms of the trust deed were considered by legal advisers who were acting for the Trustee on borrowings, and also by accounting and legal advisers concerned with the distribution of the Trustee's income. There were nine amending deeds executed before the decision was made to bring the current application. There would probably have been many more occasions on which the Trustee's advisors had to refer to the deed.
It seems inconceivable that any competent lawyer or accountant who had to consider the deed would not have become aware that the Trust would vest on 1 December 2032. Mr Walker himself states (in his June Affidavit at [50], see [54] above) that a financier of the Trustee would be concerned about when the Trust's vesting date would be. There is a concrete instance of that in amending deed (3). The amendment in that deed referred in terms to part of the vesting date definition in the original deed.
The significance of this is that, if Mr Walker really did have the mistaken understanding he now says he has about the vesting date of the Trust, there would apparently have been many opportunities over the years for that to have come up in discussion with the Trust's advisors, and to have been corrected. In particular, each of the amending deeds, including amending deed (3), would have required instructions to be obtained, ultimately from Mr Walker, which would presumably have involved some sort of explanation about why the amendments were necessary.
Against this background, only one of the amending deeds (amending deed (4)) is referred to in Mr Walker's evidence. The evidence about it is again conclusory and lacking in detail. Mr Walker mentions advice being sought by "the Trustee" but does not identify who was involved in seeking or providing that advice. Mr Walker also mentions a "review" of the original trust deed without saying anything about the scope of the review and who carried it out. Amending deed (3), with its direct reference to the vesting date, is not mentioned by Mr Walker at all. Again, the form of Mr Walker's evidence creates the suspicion that there is much that Mr Walker may have been told about the trust deed in the past but does not now remember.
In accordance with the statement of principle in Carlenka, the onus is squarely on Mr Walker to explain how it is that he came to sign the deed when it contains something he now says was incorrect. It is, of course, clear from the form of the rectification sought that the explanation cannot lie in a casual drafting error. The Trustee's application is to restructure the terms the vesting date definition rather than merely to amend it.
There are many similarities between the facts of this case and the facts of Bonhote. In Bonhote also the application for rectification came long after the event. The rectification sought involved a restructuring of terms which, on their face, were comprehensible and understandable. There was a question about how far the terms of the deed had been delegated to lawyers. The evidence was conclusory and lacking in detail.
When asked about Bonhote, counsel for the Trustee said that that case had to be understood in its historical context. At the time, it had not been authoritatively decided that rectification could be obtained of a voluntary settlement.
That may be so, but it makes no difference for present purposes. Kekewich J proceeded on the basis that rectification was available. In my opinion, his Lordship's reasoning, and that of the later English cases which have adopted similar reasoning, is entirely consistent with the principles in Carlenka. There is no ground that I can see for distinguishing it in the present case.
Counsel for the Trustee relied heavily on Mr Walker's assertion that he did not intend, and gave no instructions, for the Trust to vest on 31 December 2032. But neither, on his evidence, did he have any specific intention for the Trust to vest at the end of the royal lives period specified in the deed. Instead, he says that he intended the trust to last forever.
Counsel acknowledged that the intention which Mr Walker attributes to himself was not, in those terms, achievable. But counsel submitted that the use of the royal lives clause was close enough to be effectively the same thing.
I cannot accept this submission. In the first place, there is a difference in substance between a perpetual trust and one which ends at a particular date, no matter how far off that may be in future. Secondly, the use of a royal lives clause presents some commercial choices. One disadvantage that it has is that, until the last of the survivors of the sovereign in question has died, the date for the trust to vest will be unknown. There might be circumstances in which a fixed vesting date could be thought preferable. I do not think it can simply be assumed that if Mr Walker had been told that a perpetual trust was impossible, that would inevitably have led to him instructing Mr Kearns to have the trust vest at the end of the royal lives period specified in the trust deed.
I am not satisfied that Mr Walker's evidence is a reliable, let alone a compelling, guide to what happened in 1976. Even if I were so satisfied, on his own evidence, Mr Walker did not intend for the trust deed to take the form which it would take if this application were to succeed.
The difficulties for the Trustee's case do not end with the problems in Mr Walker's evidence. I accept that Mrs Hudspeth's intention can be taken to have been that of the Trustee. But, on my analysis, the relevant intention was that of the Trustee, not Mr Walker individually.
Mr Bannan pointed out that, at the time the deed was executed, Mr Kearns was a director of the Trustee. Mr Bannan submitted that Mr Kearns would undoubtedly have known that the trust deed provided for vesting on 31 December 2032 (which is clearly correct). It followed, Mr Bannan submitted, that the Trustee was fixed with the same knowledge and its rectification claim had to fail for that reason.
I am not sure of this submission. Mr Kearns did not execute the deed on behalf of the Trustee, and there is nothing to show that he was party to any resolution of the directors to do so. In some circumstances, where a director acts as agent for a company, the director's knowledge may be attributed even if the director does not report the matter to the rest of the board. But there is no evidence of how the board of the Trustee functioned, or that there was in fact any delegation to Mr Kearns which would make his knowledge and understanding of the terms of the deed knowledge of the Trustee. The mere fact that he was a director is not I think fatal to the Trustee's case.
Mr Walker's father's involvement, however, cannot be disposed of so easily. He executed the deed as director of the Trustee alongside Mr Walker. The intention of the Trustee at the point of execution was therefore the intention of Mr Walker and his father together. To prove that Mr Walker alone had a particular intention would not be enough to prove that the Trustee corporately held that intention.
For all the Court knows, when Mr Walker's father signed the deed, he understood that the Trust would vest, at the latest, by 31 December 2032, and was content to proceed on that basis. Mr Walker's father was having his own discretionary trust deed prepared by Mr Kearns at the same time. The vesting date for the two deeds may even have been the same.
There is no reason to think that Mr Walker's father had the same misunderstanding as Mr Walker claims to have had of the vesting date arrangements in the trust deed. In my view, this, on its own, is fatal to the Trustee's case.
Furthermore, the confirmations need to be taken into account. They are solemn restatements of the terms of the trust deed, including the vesting date provisions, as at 1985 and 2001. In my view, it would not be open to the Court to rectify the trust deed unless the Court could also be satisfied that, as at the date of each confirmation, the Trustee was still labouring under the same mistake as to the content of the original trust deed.
This topic is not mentioned in the evidence, and the other people involved in preparing the relevant amending deeds, whether as solicitors, accountants or officers of the Trustee, were not identified. In my view, this also is a fundamental obstacle to the application's success.
[9]
Laches
In their discussion of laches, the learned authors of Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015) identify two senses in which the term has been used in the authorities. One has been to denote a delay in the bringing of proceedings coupled with prejudice to the defendant resulting from the delayed assertion of the plaintiff's rights. The second has been to refer to delay which can, on its own, be interpreted as a form of acquiescence to the invasion of the plaintiff's rights (see at [38-015]-[38-020]).
Counsel for the Trustee submitted that, in order to sustain the defence, Mr Bannan needed to demonstrate that it would be in some way unconscionable for the Trustee to proceed with the application. Counsel also quoted Meagher, Gummow and Lehane at [38-070], where the authors state that in a case of laches of the second type, time does not begin to run for the defence until the plaintiff becomes aware of its rights. In counsel's submission, that was not until 2016. By that time, Mr Kearns (and Mr Walker's father) had already died. Later delay after that period would therefore have not resulted in any prejudice.
There are a number of difficulties with this submission. The first is that Mr Walker did not in fact say that he was unaware of the alleged error in the deed in 2016. His final position (in his November affidavit at [9], see [55] above) was that he could not remember having been aware at any earlier point.
The second difficulty is that in the paragraph of Meagher, Gummow and Lehane cited, the authors go on to state that "means of knowledge" may be sufficient for time to run. On the face of it, the Trustee had the means of knowledge, in the form of the trust deed as executed, from 1976. It is also relevant that one of the basic duties of a trustees is to familiarise themselves with the terms of the trust: see Heydon, JD and Leeming, MJ, Jacobs' Law of Trusts in Australia (LexisNexis Butterworths, 8th ed, 2016) at [17-01].
There was some debate about whether "means of knowledge" is sufficient, and if so, how the test would be applied to the facts of the present case. But it is not necessary to go into the question in any more detail. There is a more fundamental objection to counsel's submission.
In my view, the laches defence in the present case is a defence of the first type. Mr Bannan is not alleging some form of implied acquiescence. He is simply alleging that there has been undue delay and that, as a result of that delay, the prosecution of the Trustee's claim for rectification would be unfair. Specifically, evidence which might have been relevant has been lost.
The learned authors go on to say, in the cited passage of Meagher, Gummow and Lehane, that in laches cases of the first type, plaintiffs' knowledge of their rights are, in principle, immaterial. It is simply a question of whether, in the light of the Trustee's delay, it would be fair to allow the application to go ahead.
Counsel for the Trustee argued there was no opposing party to be prejudiced. But I do not think the unusual nature of this case can defeat the application of the defence. As I explain below, the case has in fact been conducted as a disputed claim inter partes as between the Trustee and the contradictor. The question is whether, as a result of the Trustee's delay, the contradictor's response to the claim has been prejudiced.
The Trustee was free to bring this claim at any time from February 1976 onwards. Plainly, the delay has resulted in evidence from Mr Kearns (and Mr Walker's father) becoming unavailable. It does not matter that the Court cannot know what Mr Kearns (or Mr Walker's father) would have said. The fact is that evidence from them has been lost and that evidence was potentially relevant. The defence succeeds.
In saying this, I should not be taken to accept that prejudice only arose on the death of Mr Kearns (or Mr Walker's father). Where documents are not available and the only relevant evidence is oral, fading recollection can also be a source of prejudice. Even if Mr Kearns or Mr Walker's father were still alive, they would be highly unlikely to remember events in the detail required for proper resolution of this case.
[10]
Procedural questions
As Kekewich J observed in Bonhote, in cases such as the present, there may be a difficulty in finding someone with a sufficient interest to oppose the relief sought. In the case of a modern discretionary trust, the settlor would be a proper party, but would usually have no practical interest in the outcome of the case. It is possible that an appointor (where one exists) or a beneficiary may have an interest, but, depending on the nature of the change, that interest may not be a readily quantifiable one. It is not surprising in the present case that none of the beneficiaries have wished to become involved.
In cases such as the present, the amendments are often sought for taxation purposes. In some of the cases, the taxation authorities have been joined as parties, or at least notified and invited to appear. In Carlenka, the Commissioner for Stamp Duties was joined as a defendant at first instance to resist the claim and then appealed (unsuccessfully) against the rectification order that was made.
In the present case, no enquiry was made of the taxation authorities to see whether they wished to be heard. Mr Bannan suggested in his written submissions that the hearing should not proceed until this enquiry had at least been made.
Counsel for the Trustee pointed out that, upon vesting, the Trust will be converted from a discretionary trust to a fixed trust. This will not itself have any capital gains tax consequences. That may be so, but, once the assets are vested in individuals, the likelihood of their sale or transfer will increase. The longer the Trust continues, the longer that vesting will be deferred, and the longer the Trustee may be able to distribute its income among the beneficiaries so as to minimise the tax burden on that income.
The problem is, however, that the future tax consequences of extending the Trust's vesting date are unknown and unquantifiable. Counsel submitted that the tax authorities' interest in the current issue is so remote and speculative that it would have been pointless to invite them to join the proceedings, and I agreed.
What, then, is the Court to do when there is no settlor, the beneficiaries do not want to get involved, and there is insufficient reason to join the taxation authorities? What is fundamental, in my view, is that rectification is a substantive form of relief based on contestable facts. It is unsatisfactory that it should be granted on an ex parte basis.
In testamentary proceedings, the executor is usually seen as being under an obligation to defend the deceased's will on behalf of the beneficiaries of that will. Where rectification of a trust deed is sought, it would make sense to treat the trustee as being under an equivalent obligation to defend the trust deed in its existing form, in the interests of the beneficiaries under that form of the deed.
There can, of course, still be a practical problem when the rectification application is being pursued by the trustee itself. In the present case, the answer was found by appointing a contradictor to make submissions. But, with hindsight, the direct appointment of counsel as a non-party contradictor was not ideal. Mr Bannan was, among other things, unable to take advantage of the usual procedures for gathering evidence.
It would be better to identify someone as a suitable person to defend the proceedings on behalf of the trust, and to appoint that person as a defendant for that purpose. The Court, in the exercise of its administrative jurisdiction, has ample power to do this: see the authorities referred to in Gillespie v Gillespies Cranes Nominees Pty Ltd [2022] NSWSC 1184 at [41]-[70]. The appointed representative defendant can then instruct independent solicitors who can gather evidence and retain counsel. If there is some doubt about the defence of the application, then judicial advice can be obtained.
[11]
Conclusions and orders
The claim for rectification fails. I will therefore dismiss the Summons. I have already noted that the Trustee has undertaken to pay Mr Bannan's costs as contradictor.
The orders of the Court are:
1. Order that the Summons be dismissed.
[12]
Amendments
08 March 2023 - At para 133- Grammatical error
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Decision last updated: 08 March 2023