BETWEEN : PETER REGINALD KIRKHAM as Trustee of the KIRKHAM FAMILY TRUST

Application for rectification of trust deed - Mistake regarding effect of instrument

Kent v Brown (1942) 43 SR(NSW) 124

Public Trustee v Smith [2008] NSWSC 397

1 MARTIN CJ: (This judgment was delivered extemporaneously on 6 May 2010 and has been edited from the transcript.)

2 This is an application by Peter Reginald Kirkham in his capacity as trustee of the Kirkham Family Trust for orders for rectification of the deed creating the trust. Mr Kirkham is also named in the trust deed as a specified beneficiary.

3 The application is brought pursuant to O 58 r 2 of the Rules of the Supreme Court. That rule allows a trustee or beneficiary to seek a determination by the Supreme Court of any question arising under a trust. The case of Kent v Brown (1942) 43 SR(NSW) 124, 127 establishes the basic proposition that when by mistake different trusts were declared in the instrument of trust other than those that were intended by the settlor in the trustee, then the document may be rectified at the suit of the settlor or a volunteer beneficiary. As I have already noted, Mr Kirkham is both the trustee of the trust and a specified beneficiary.

4 I am satisfied also that notice has been given to all adult beneficiaries of the trust and the guardians of any infant beneficiaries of the trust and I am satisfied that none of those persons wishes to be heard in relation to the relief sought.

5 The Commissioner of Taxation was granted leave to intervene in these proceedings and to act as a contradictor. However, the Commissioner no longer wishes to be heard and by consent orders made yesterday was granted leave to withdraw.

6 The plaintiff relies upon the affidavits that have been filed in support of the application. I will receive the two affidavits of Mr Kirkham, the two affidavits of Alistair Robert MacKay, and the affidavits of Domenic Martino, Keith Jones, Richard Norton, Roderick Hager, and Fiona Elizabeth Cross into evidence.

7 When an application is made for rectification of a trust instrument the essential question is whether there is clear and convincing evidence that it was the common intention of the settlor and the trustee, at the time the trust was created, that some result other than that which was ultimately effected by the instrument should be achieved. Authority for that proposition is found in the decision of White J in Public Trustee v Smith [2008] NSWSC 397 [71].

8 In this case the intention of Mr Kirkham, as the trustee, is relevant. The settlor of the trust was Mr Alistair MacKay, who was a junior solicitor in the law firm responsible for the preparation of the trust instrument.

9 Given that the trust was executed in 1987, it is understandable that Mr MacKay has no present recollection of the events relating to its creation. It is clear from the evidence that, to the extent that he was involved in the matter, he acted in a professional capacity only and under the supervision of his principals who were, relevantly at that stage, Mr Norton and Mr Hager.

10 In those circumstances, it is again established by authority that the relevant intent in relation to the settlor is that of the person providing instructions to the settlor: Public Trustee v Smith [73].

11 Ultimately, it was Mr Kirkham who, through the intermediary of his accountant Mr Domenic Martino, was responsible for providing instructions to the settlor, Mr MacKay, through his principal, Mr Norton. So, in this particular case it is the intention of Mr Kirkham that is critical because he was effectively both the agent instructing the settlor and the trustee at the time of creation of the trust instrument.

12 The evidence satisfies me that it was Mr Kirkham's intention that he be a beneficiary. Mr Kirkham has deposed to that in par 20 of his first affidavit and par 6 of his second affidavit. There is no reason to doubt that assertion. It is logical, plausible and consistent with the original reasons for creation of the trust. That intention is, I think, manifested in the fact that he was nominated expressly as a specified beneficiary in the trust deed and it is also consistent with his subsequent actions as trustee in making distributions to companies in which he had an interest, obviously on the assumption that he was a member of the class of general beneficiaries.

13 I am satisfied that the lawyers involved in the preparation of the trust instrument failed to appreciate the effects which flowed from Mr Kirkham being specified personally as the trustee rather than, as was the general practice, a proprietary limited company. The effect of that alteration under the standard trust instrument used by the firm was that Mr Kirkham fell within the definition of the 'excluded class' and, therefore, outside the class of 'general beneficiaries' unless he was expressly made an additional member of that class. I am satisfied that it was oversight which resulted in Mr Kirkham not being made an additional member of the class of 'general beneficiaries'.

14 The fact that it was an oversight is entirely consistent with and demonstrated by the fact that he was expressly included in the class of 'specified beneficiaries'. It would, I think, be inconsistent and illogical to have included him within that class but to have also omitted him from the class of 'general beneficiaries'.

15 I am satisfied, therefore, that all the appropriate requirements for the making of an order for rectification have been made out. There is clear evidence of the relevant intention of the settlor and the trustee at the time, that intention was frustrated by an accidental omission by those responsible for the preparation of the trust instrument and so the trust instrument did not reflect that intention. It should now be rectified retrospectively so as to reflect that intention.