By a summons filed on 29 October 2021, the plaintiff, Mr Paul Mason, seeks rectification of a deed establishing a trust known as "The Paul Mason Family Settlement" to include himself as one of the beneficiaries of the trust.
The trust was established by a deed dated 2 July 1973 made between Mr Nicholas Mason (Nicholas) as settlor, and the plaintiff as trustee. Nicholas is one of the plaintiff's two older brothers. The sole asset held by the plaintiff as trustee for the trust is 12 of 13 shares in Paul Mason Pty Ltd, a company through which, as I will explain, the plaintiff has acquired real property. The remaining share is held by Nicholas on trust for the trust.
The trust deed relevantly names as beneficiaries of the trust:
1. the spouse of the plaintiff, if any;
2. the children, grandchildren and further issue of the plaintiff;
3. the siblings of the plaintiff and their children provided they are nominated in writing by the plaintiff to be a beneficiary; and
4. any person who at any time is a spouse of a beneficiary.
The plaintiff has never married and has no children. As the plaintiff points out, had he married he would have been a beneficiary because he would have been a spouse of a beneficiary.
On 17 November 2017, the plaintiff nominated three of his nephews as beneficiaries of the trust. They are married, and, accordingly, their wives are also beneficiaries. Prior to 17 November 2017, there were no beneficiaries of the trust.
Notice of the proceedings has been given to Revenue New South Wales and the Australian Taxation Office. Neither wished to be heard on the application. The plaintiff has also given notice to each of the beneficiaries. None of them wishes to be heard on the application and each consents to the orders sought.
The Court has power to rectify a document, including a deed establishing a trust, if that document does not correctly record the intention of the parties to it: see Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 (Carlenka).
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd [2022] NSWSC 808 | Case summary | Zoe
In order to grant rectification, the Court must be satisfied by clear and convincing evidence that at the time of the execution of the instrument the instrument did not reflect the parties' actual intention: see Carlenka at 345 per McLelland AJA. It is also necessary that the parties' actual common intention be capable of clear expression: see Public Trustee v Smith [2008] NSWSC 397.
The trust was established when the plaintiff was in his twenties. At the same time, each of Nicholas and the plaintiff's oldest brother, Mr Michael Mason (Michael), established trusts in substantially similar terms. Each trust deed was prepared by the same firm of solicitors and instructions were given at the same time for the preparation of all three trust deeds. None of the trust deeds specifically named the trustee as a beneficiary. However, Michael and Nicholas, unlike the plaintiff, are and were at the time married and consequently are beneficiaries of their respective trusts by virtue of the fact that their respective spouses are beneficiaries.
The trusts were established approximately eleven years after the death of the brothers' father. They were established to provide a vehicle to enable the three brothers to acquire additional properties as part of the family farming business, in which each of them was involved, with the intention that eventually they would acquire sufficient land so the business could be divided between the three of them. The original property, known as Westwood, had been bequeathed by the plaintiff's father to the plaintiff's mother and Michael.
As I have explained in relation to the trust established by the plaintiff, each trust holds shares in a company. The intention was that the three companies would be the purchasers of any additional properties. The plaintiff gives evidence, which I accept, that their accountant and financial adviser at the time, Mr Dick Eastway, at a meeting attended by the three brothers on 19 January 1973 explained the structure in these terms:
I've been in consultation with Bernie Bambach [the solicitor who drafted the trust deeds] and we both agree to advise you three that you should hold your property interest through setting up a structure so that you each three of you have a company with your own discretionary trust as shareholder. Each three of you would control your own trust and you would each be a beneficiary of your own trust. This way you will be able to have control of your proprietary interests in property separately and also have control of the entity holding the asset and you each are a beneficiary of your own trust. The interest in property would be in the name of the three companies as tenant in common.
That conversation is consistent with an earlier conversation that the plaintiff says he had with Nicholas to the following effect:
NM: I met and spoke with accountant Dick Eastway. I think he will be a good accountant for us. I really liked him. He was very proactive and I think he will be good for the business. He has advised that if we are going to purchase further property in the future we really want to do it through a company with involvement of a trust. We would each have control of our own companies and our own trusts and we would be the beneficiaries of those trusts so we would be holding our ownership interest in property through that company and trust structure.
Me: That sounds like a good idea. I'm glad you went down to Sydney to meet him. Thank you for doing that. Let me know when we need to do something
Nicholas does not give evidence of that conversation, but he does give evidence which is consistent with what the plaintiff was told. In particular, he gives this evidence:
The purpose of the trust was to create wealth for me and my family and therefore I expected that I would have control of and be a beneficiary under my trust deed. The same applies for my brothers Paul and Michael. As a result of the instructions given by us to Mr Eastway, his advice provided, the instructions we provided to Mr Bambach and the advice she [sic] provided I expected that each of Paul and Michael would also would [sic] have been beneficiaries of their own trust deed, which was created for the purpose of wealth creation in their own names and for their separate benefit of each of them and their immediate family.
Following the establishment of the three trusts, one property that was at the time held by the three brothers as tenants in common in equal shares was transferred to the three companies in equal shares and further properties were bought by the three companies, sometimes in conjunction with family members. In about 1990, the properties that were owned by the three companies and family members were divided into three, more or less equal shares. The one-third share referable to the plaintiff was transferred or held by him personally as to one-third and as to the balance by Paul Mason Pty Ltd.
Since the purpose of the trust was to hold land, it has not distributed any capital or income. Consequently, it was not necessary for the plaintiff or his advisers to consider who the beneficiaries of the trust were until 2017, at which time the plaintiff started investigating the possibility of selling the properties owned by the trust he controlled to his three nephews who are the beneficiaries of the trust.
Having regard to the background and the advice given to both the plaintiff and Nicholas at the time the trust was established, it seems obvious that the plaintiff and Nicholas intended that the plaintiff would be one of the beneficiaries of the trust. The purpose of the trust was to provide a structure by which the plaintiff could acquire real property for his own benefit and for the benefit of his wife and children, if he had them, and other family members he nominated. It makes no sense that the plaintiff and Nicholas would have intended that the plaintiff would only be a beneficiary if he married and that he would become a beneficiary by virtue of his wife's status as a beneficiary. The advice that both received at the time was that the plaintiff would be a beneficiary, and they both signed the trust deed on that basis. The evidence is that neither the plaintiff nor Nicholas read the trust deed but instead proceeded on the assumption, which was consistent with the advice that they had been given, that the plaintiff would be a beneficiary. That was a natural assumption to make in the circumstances.
There is some suggestion in the evidence that Mr Bambach made a deliberate decision to exclude each of the brothers as a beneficiary of his own trust because of death duty implications. However, the relevant intentions are those of the plaintiff and Nicholas, not of their solicitor. Both deny that they were concerned about death duties or that they had given any instructions to draft the trust deed so as to minimise the possibility that death duties would be payable on the plaintiff's death.
Their evidence is consistent with evidence given by Mr Peter Brown, a farm management adviser who advised the three brothers. He gives the following evidence:
Although some of my clients were entering into structures to avoid death duties such as setting up companies and putting the shares in various family member [sic] names this was not something that I was advising the Masons on, and they never sought my advice on it and I never provided it.
There is no evidence that either the plaintiff or Nicholas was told that the plaintiff should not be included as a beneficiary because of death duty implications or that they were told that the trust deed had been drafted in that way. As I have already said, the advice given by Mr Eastway is that the plaintiff would be a beneficiary.
Accordingly, I am satisfied that it was the plaintiff's and Nicholas' intentions that the plaintiff be a beneficiary of the trust and that the trust deed should be rectified in the way sought.
The orders of the Court are:
1. Order that the Deed entitled the "Paul Mason Family Settlement" made as between NICHOLAS MASON (as settlor) and PAUL GEOFFREY MASON (as trustee) ("the Trust Deed") dated 2 July 1973 be rectified so that the definition of "Beneficiaries" as contained in clause 1(c) of the Trust Deed include at new paragraph 1(c)(vi) of the Trust Deed the following words:
"(vi) Paul Geoffrey Mason."
[2]
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Decision last updated: 20 June 2022