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[2003] NSWSC 596
plaintiff. Declaration and rectification granted in the terms sought in paragraphs 1 and 2 of the summons. No order as to costs ([39]-[40]).
The parties intended to ensure that no trustee could ever benefit from the trust, partly to meet the conditions relevant to nominal stamp duty on a trustee change. The deed they signed removed the existing permission for trustees to benefit but did not make that exclusion permanent. The Court found this was a mismatch between their continuing common intention and the deed's effect, and ordered the deed corrected. The Commissioner did not oppose the substantive orders. The Court made no order as to costs.
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Oates Properties Pty Ltd concerned an application to rectify a deed appointing a new trustee of the Cameron Oates Property Trust. Gzell J heard the matter in the Equity Division of the Supreme Court of New South Wales and delivered judgment on 4 July 2003. The first plaintiff was the incoming trustee, the second plaintiff the retiring trustee, and the third plaintiff the trust's appointor. The Commissioner of State Revenue appeared and submitted to the substantive orders sought, but not to an order for costs ([1], [40]).
No linked legislation citations have been extracted yet.
The practical background involved six properties held by the trust and a separate rural property being acquired by the retiring trustee in its own right. St George Bank required the rural property to be held on a stand-alone basis for refinancing purposes. Because contracts for that property's purchase had already been exchanged in the name of the retiring trustee, the appointor considered replacing the trustee ([3]).
The parties were concerned about the stamp duty consequences of transferring the six trust properties to a new trustee. Section 54(3) of the Duties Act 1997, as set out in the judgment, provided for duty of $10 if the Chief Commissioner was satisfied that no continuing or newly appointed trustee was or could become a beneficiary and that the transfer was not part of a scheme detrimental to beneficial interests. If those requirements were not met, the transfer was chargeable at the rate applicable to a transfer to a beneficiary in conformity with the trusts ([2]).
The appointor sought advice from the trust's financial controller and lawyer. The solicitor examined section 54 and Revenue Ruling SD 118. The ruling, as quoted in the judgment, contemplated nominal duty where trustees were absolutely prohibited from benefiting and the amendment was irrevocable ([5]-[8]). The trust deed, however, allowed a trustee to be a beneficiary under clause 3.2 ([9]).
The deed of appointment revoked clause 3.2 and provided that the new trustee covenanted not to receive a benefit from the trust fund. It did not state that the exclusion was irrevocable or prevent the clause from being restored by a later amendment ([10], [15]). The Commissioner considered that the deed failed to make the required irrevocable change and assessed $245,869 duty on the six transfers. An objection was lodged and disallowed ([12]).
The plaintiffs asked the Court to declare that their common intention was to exclude trustees permanently from benefiting and to rectify the deed by inserting wording to that effect ([13]-[14]). Gzell J granted the requested substantive relief, but made no order as to costs because the need for the proceeding did not arise from the Commissioner's conduct ([39]-[40]).
The central question was whether the deed could be rectified when the parties knew the words they had used but misunderstood their legal effect. Gzell J described the case as “par excellence” a mistake of law: the parties were not mistaken about the words in the deed, but about what those words legally achieved ([15]).
The judgment recognised that the authorities on rectification for mistake of law are not readily reconcilable ([16]). It reviewed several English decisions dealing with documents that failed to give effect to the parties' or settlor's intended arrangement. Those authorities included cases involving tax clauses, an agreement about household expenses, and a trust settlement clause ([17]-[24]). They were discussed as part of the legal background, rather than as a substitute for the New South Wales Court of Appeal's reasoning in Carlenka.
Carlenka supplied the main framework. Gzell J recounted Sheller JA's statement that a claimant must prove disconformity between intention and the written instrument, and that the intention continued until execution. The claimant must also displace the inference that the signed instrument expressed the true intention ([29]). The judgment further described the required intention as clear and precise and capable of expression in the rectifying order ([30]).
Applying that framework, the Court found a continuing intention that trustees should never benefit under the trust. The relevant aim was not simply to delete clause 3.2 as it then stood. The intended result was to prevent any trustee from benefiting in the future, which required the exclusion to be irrevocable ([35], [38]). The executed deed did not achieve this because revoking clause 3.2 did not prevent a later amendment from reintroducing a permission for trustees to benefit ([15], [38]).
The proposed replacement wording supplied a precise way to give effect to the stated intention. Gzell J found that the plaintiffs had displaced the usual inference from execution that the deed expressed their true intention and that the intention could be achieved through the wording they sought ([39]). This is the key reason the Court ordered rectification.
The Court also considered Club Cape Schanck, where rectification had been refused because the settlement terms expressed the parties' common intention, even though the nominated tribunal lacked jurisdiction to implement it. Gzell J distinguished that situation: here, the problem was that the deed itself did not express the common intention, because its exclusion was not irrevocable ([34]-[35]).
The judgment did not announce a new statutory test for stamp duty or decide a general question about the operation of section 54 beyond the issue presented. It recorded the section's conditions and considered whether the deed's terms met the intended exclusion of trustees from benefits ([2], [7], [12], [15]).
On rectification, the judgment dealt with an established equitable remedy and the difficult boundary between mistake of fact and mistake of law. It noted that authorities differed on whether rectification could address a mistake about the legal effect of words that were deliberately included ([16], [22]-[25]). Its operative approach was drawn from Carlenka: identify a continuing intention, establish that the instrument does not give effect to it, and show that the intended result can be stated clearly in the rectifying order ([29]-[33], [38]-[39]).
The judgment also recorded a qualification from Carlenka: rectification is not concerned with a discordant consequence that is merely remote or collateral to the instrument's legal and factual operation. Stamp duty was given in the quoted passage as an example of a collateral consequence ([33]). Gzell J listed later decisions that had cited this qualification, but did not treat the present case as turning on a remote consequence. He characterised the defect as the deed's failure to create the permanent exclusion that was itself intended ([35]-[38]).
Thus, the judgment's contribution within its own account is an application of the Carlenka framework to a mistake about whether the deed's language made a trust amendment irrevocable. It does not establish, on the text supplied, how later courts ultimately treated Oates Properties. It does record that Carlenka had been cited with approval in a number of decisions by 2003 and states that Carlenka was binding on Gzell J ([37]).
At [15], Gzell J calls this a “case of mistake of law” and distinguishes a mistake about the deed's words from a mistake about their legal effect. In plain English, the parties knew they had removed the existing clause allowing trustees to benefit; they did not appreciate that removing it did not make the prohibition permanent.
At [29], the judgment quotes the test that there must be “disconformity between the intention and the written instrument” and that the intention must continue to execution. In plain English, it is not enough that someone later regrets a document. The evidence must establish a relevant intention that existed when the instrument was signed and a mismatch between that intention and what the signed instrument does.
At [35], Gzell J says that the common intention was to exclude trustees from benefit “forever”, but the deed's exclusion of clause 3.2 was not irrevocable. This is the factual and legal link between the evidence of intention and the defect in the document.
At [38], the Court says the intention continued until execution and the deed did not achieve it because the exclusion was not irrevocable. This confirms that the mistake concerned the document's operation, rather than a change of mind after signing.
At [39], the Court finds that the plaintiffs displaced the assumption that the signed deed expressed their true intention. The intended wording was sufficiently clear to be inserted by rectification, so the Court granted the relief sought.
On the facts and reasoning of this judgment, the rectification analysis is potentially relevant where a party says an executed trust instrument or other document fails to record a specific, continuing intention because the legal effect of its wording was misunderstood. The focus is not simply that the document produces an unwelcome result. The judgment requires proof of a particular intention, its continuation to execution, and a clear mismatch between that intention and the instrument ([29]-[30], [38]-[39]).
The case illustrates a difference between removing a provision and making its removal permanent. Here, the parties intended to prevent trustees from benefiting, but the deed only revoked an existing permission. The Court treated the possibility of reintroducing that permission as material because it meant that the deed did not produce the intended irrevocable exclusion ([10], [15], [35]).
The judgment also indicates why the exact object of the intended transaction matters. The intended result was not merely to obtain a particular stamp-duty outcome. The Court described the intention as permanently excluding trustees from benefit, and compared that intention with the deed's legal effect ([35], [38]). The judgment therefore does not establish that an unexpected tax or duty consequence, by itself, is sufficient for rectification. It expressly records a distinction between the instrument's operation and remote or collateral consequences ([33], [36]).
For a lawyer analysing an analogous dispute, issues raised by the judgment would include what evidence establishes the common intention, whether it continued at execution, whether the parties knew the relevant words, what those words do on their proper construction, and whether the proposed correction precisely captures the intention. The decision itself does not determine how those matters would be resolved on different evidence or under different statutory provisions.
The supplied judgment contains no account of decisions after 4 July 2003 that considered Oates Properties. It would therefore be unsupported to state how later courts have treated this particular decision.
What the judgment does report is the treatment of Carlenka by other courts before Oates was decided. At [37], Gzell J lists a series of decisions said to have cited Carlenka with approval, including Conagra International Fertiliser Co v Lief Investments Pty Ltd, Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd, Palmer v Roads and Traffic Authority, Fitzwood Pty Ltd v Unique Goal Pty Ltd, Barak Pty Ltd v W T H Pty Ltd, and LE Stewart Investments Pty Ltd v FC & M Legge Building Contractors & Developers. Gzell J states that Carlenka was binding on him.
The judgment's use of Carlenka is direct: it adopts the disconformity and continuing-intention framework, then applies it to the deed before it ([29]-[33], [38]-[39]). The other listed decisions are cited as supporting the standing of Carlenka's approach, not as decisions applying Oates Properties. A current account of subsequent treatment would require sources beyond the judgment provided here.
The judgment does not attempt to reconcile every authority concerning rectification for mistake of law. It expressly notes that the authorities are difficult to reconcile and discusses competing statements about documents whose words were deliberately used but misunderstood as to legal meaning ([16], [22]-[25]). The reach of rectification in other forms of legal mistake therefore remains a question beyond the particular facts decided.
Nor does the judgment comprehensively define when an effect is sufficiently direct, rather than remote or collateral. It records the qualification in Carlenka and cites decisions discussing it, but resolves this case by finding a mismatch between the intended permanent exclusion and the deed's actual effect ([33], [36], [38]). The boundary may require separate analysis in cases where the asserted mismatch concerns only an external tax or duty consequence.
The reasons also do not provide a detailed evidentiary account of every conversation or document relevant to intention. They summarise the advice and instructions and make findings that the intention continued to execution ([5]-[11], [38]-[39]). The judgment consequently does not determine what kinds or degree of evidence would suffice where the parties dispute their intention or where the proposed correction is less precise.
Finally, the Commissioner submitted to the substantive orders, and the judgment does not decide a contested appeal about the duty assessment or determine the general application of section 54 to other trustee changes ([1], [12], [39]). Its decision concerns the equitable rectification application on the facts presented, not every potential dispute about nominal duty or trustee-benefit provisions.
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CITATION : Oates Properties Pty Ltd & Ors v Commissioner of State Revenue [2003] NSWSC 596 HEARING DATE(S) : 26/06/03 JUDGMENT DATE : 4 July 2003
JUDGMENT OF : Gzell J DECISION : Declaration as to common intention and rectification of deed of appointment
CATCHWORDS : EQUITY - Equitable Doctrines and Presumptions - Rectification - Mistake of Law - Deed of appointment of new trustee - Failure irrevocably to exclude benefits to trustees - Ad valorem stamp duty assessed on transfers of property to new trustee - Disconformity between common intention and deed of appointment - Whether rectification should be granted Duties Act 1997 LEGISLATION CITED : Revenue Ruling SD 118 Stamp Duties Act 1920 Income Tax Act 1918 (UK) Burroughes v Abbott [1922] 1 Ch 86 Jervis v Howle and Talke Colliery Co Ltd [1937] Ch 67 Whiteside v Whiteside [1950] Ch 65 Joscelyne v Nissen [1970] 2 QB 86 Re Butlin's Settlement Trusts [1976] Ch 251 Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 Prestige Land Developments Pty Ltd v Eagle Hotels Pty Ltd [1996] ANZ Conv R 208 Baird v B C E Holdings Pty Ltd (1996) 40 NSWLR 374 Victoria Gardens Developments Pty Ltd v Commissioner of State Revenue (1999) 99 ATC 4683 Davis v Federal Commissioner of Taxation (2000) 171 ALR 654 CASES CITED : Baxter v Federal Commissioner of Taxation (2002) 196 ALR 519 Conagra International Fertiliser Co v Lief Investments Pty Ltd (1997) 141 FLR 124 Terceiro v First Mitmac Pty Ltd (1997) 8 BPR 15,733 Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529 Leibler, Leibant Investments Pty Ltd v Air New Zealand Ltd [1999] 1 VR 1 at 27 Trimmer v Lax (unreported, 9 May 1999, SC (NSW)) Furey v Mackne (unreported, 9 December 1999, SC (NSW)) Palmer v Roads and Traffic Authority [2001] NSWSC 846 Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2002] FCAFC 285 Barak Pty Ltd v W T H Pty Ltd [2003] NSWSC 15 LE Stewart Investments Pty Ltd v FC & M Legge Building Contractors & Developers [2003] NSWSC 193 Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th ed, Butterworths Lexis Nexis, Australia, 2002 Spry, The Principles of Equitable Remedies, 6th ed, LBC Information Services, Australia, 2001 Kerr on Fraud and Mistake, 6th ed, Sweet & Maxwell, UK, 1929 Oates Properties Pty Ltd - 1st Plaintiff PARTIES : Cameron Oates Properties Pty Ltd - 2nd Plaintiff Cameron William Donald-Oates - 3rd Plaintiff Commissioner of State Revenue - Defendant FILE NUMBER(S) : SC 2259/03 COUNSEL : Mr J O Hmelnitsky SOLICITORS : Blake Dawson Waldron Lawyers
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION
2259/03 OATES PROPERTIES PTY LTD & ORS v COMMISSIONER OF STATE REVENUE JUDGMENT 1 The first plaintiff is the new trustee of the Cameron Oates Property Trust. The second plaintiff is the retiring trustee and the third plaintiff is the Appointor under the trust. They seek rectification of the deed of appointment of the new trustee. The defendant, the Commissioner of State Revenue, has entered an appearance submitting to the orders of the Court save as to costs. 2 The Duties Act 1997, s 54(3) provided that duty of $10 was chargeable with respect to a transfer of dutiable property as a consequence of the retirement of a trustee or the appointment of a new trustee if the Chief Commissioner was satisfied that: "(a) none of the continuing trustees remaining after the retirement of the trustee is or can become a beneficiary under the trust, and (b) none of the trustees of the trust after the appointment of a new trustee is or can become a beneficiary under the trust, and (c) the transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest or potential beneficial interest of any person."
If the Chief Commissioner was not so satisfied, the transfer was chargeable with the same duty as a transfer to a beneficiary in conformity with the trusts. 3 The second plaintiff, as trustee, had acquired six properties for $4,735,000 million on which stamp duty of $208,895 had been paid. The third plaintiff negotiated the acquisition of a rural property to be held by the second plaintiff in its own right. Contracts were exchanged. Negotiations then took place with St George Bank to re-finance the six properties held by the second plaintiff as trustee. The bank required the rural property to be held on a "stand-alone" basis and not by the same entity that held the other properties on trust. Since contracts for the acquisition of the rural property in the name of the second plaintiff had been exchanged, the third plaintiff thought the most appropriate course was to appoint a new trustee in the stead of the second plaintiff. 4 Clause 14.1(b) of the trust deed constituting the trust provided that the Appointor, without the consent of the trustee or trustees, might appoint a new trustee or trustees in the place of, or in addition to, any existing trustee or trustees provided that the settlor should not be eligible for appointment as a trustee. 5 Before proceeding with this course of action, the third plaintiff was anxious to ensure that there would be no adverse financial or taxation implications. A meeting took place between the third plaintiff, Andrew Cusack, the financial controller of the trust and Peter Edwards, chartered accountant. The third plaintiff explained that he wanted to know if he could appoint a new trustee in place of the existing trustee without having to pay ad valorem stamp duty on the transfer of the six properties held by the trust. Mr Edwards said that his understanding was that if it was just a change of trustee with no change of beneficial ownership, only nominal duty would be payable. Since he was not a stamp duty expert, Mr Edwards suggested that advice be taken from the trust's lawyers, Davidsons Solicitors. 6 The third plaintiff telephoned Mark Ronald Davidson and explained that he was considering the appointment of a new trustee but was concerned about the possible imposition of stamp duty on the transfer of the properties. He said: "I have spoken to Peter Edwards about this. I want to be sure that if we appoint a new trustee there is no stamp duty payable. I'm not going to do it if I have to pay thousands in stamp duty again. Peter Edwards thinks that there is no duty to pay. Can you talk to him and check it for me." 7 Mr Davidson spoke with Mr Edwards who said he did not think that duty was payable. Mr Davidson instructed an employed solicitor to research the matter. She drew his attention to the Duties Act 1997, s 54 and to Revenue Ruling SD 118 with respect to the forerunner of that provision. In particular, it contained the following view of the Chief Commissioner: "It is accepted by the Chief Commissioner that if: (a) an amendment is made to a deed of trust of a discretionary trust to the effect that any persons who are or have been the trustees of the trust are absolutely prohibited from being a beneficiary under the deed or otherwise directly or indirectly benefiting under the deed; and (b) that amendment is irrevocable a transfer to a new trustee of the trust, which is consequential upon the execution of an instrument of appointment or retirement referred to in section 73(1)(a)(i) to (iii), would be liable to the nominal duty of $1 under section 73(2A)." 8 Mr Davidson telephoned the third plaintiff and advised him that if a new trustee was appointed, all the properties could be transferred without lability to ad valorem stamp duty provided the new trustee and any other trustees appointed after that could never benefit from the trust. The third plaintiff instructed Mr Davidson to draft the necessary documents to effect the appointment of a new trustee and to make any amendments to the trust deed that were necessary to exclude trustees from benefit under the trust. 9 Clause 3.2 of the trust deed provided that notwithstanding any rule of law or equity to the contrary, a trustee of the trust might be a beneficiary of the trust and benefit from it in the same way as any other beneficiary. 10 Mr Davidson settled a deed of appointment whereunder the third plaintiff accepted the resignation of the second plaintiff and confirmed the appointment of the first plaintiff as trustee of the trust in place of the second plaintiff. The second plaintiff confirmed its retirement and was discharged from further performance of obligations and duties under the trust. The first plaintiff covenanted that it had not received a benefit of any kind whatsoever in connection with the trust. The deed contained the following provisions: "4.1 Clause 3.2 of the Trust Deed is hereby revoked.
4.2 The New Trustee covenants it shall not receive a benefit from the Trust Fund." 11 Mr Davidson believed that the deed of appointment would satisfy the defendant in terms of Revenue Ruling SD 118. The third plaintiff executed the deed of appointment on his own behalf and on behalf of the first and second plaintiffs in the belief that only a nominal amount of stamp duty would be payable on the transfer of the six properties to the first plaintiff. The sole reason the third plaintiff intended to appoint the first plaintiff as trustee was to secure the re-financing by quarantining the rural property as required by St George Bank. 12 Following execution, the deed of appointment and transfers of the six properties were lodged with the defendant. The defendant expressed the view that an effective amendment required reference to the trustee not becoming a beneficiary to be irrevocable which was not the case. He assessed duty on the six transfers at $245,869. An objection to the assessment was lodged and disallowed by the defendant. 13 The plaintiffs seek a declaration that it was their common intention at the time of execution of the deed of appointment that it include the following clause in lieu of cl 4.1: "Clause 3.2 of the Trust Deed is hereby revoked and in lieu thereof, a new clause 3.2 is hereby inserted as follows: "Any new trustee of the Trust and any subsequent trustee of the Trust or any person who has been a trustee of the Trust must not be or become a beneficiary of the Trust. Despite any other provision of this Deed, this clause 3.2 is irrevocable and may not be removed or amended." 14 The plaintiffs seek an order that the deed be rectified to give effect to that intention by including the above clause as if from the date of its execution. 15 This is, par excellence, a case of mistake of law. The parties were not mistaken as to the provisions of the deed. They were mistaken as to their legal effect. The defendant was not satisfied in terms of the Duties Act 1997, s 54(3)(a) and s 54(3)(b) that none of the trustees, present or future, could become beneficiaries of the trust. The mere deletion of cl 3.2 did not exclude the possibility of subsequent amendment of the trust deed to re-insert such a provision. 16 As the learned authors of Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th ed, Butterworths Lexis Nexis, Australia, 2002 at par 26-060 point out, the authorities on the question whether rectification will be granted for mistake of law rather than mistake of fact are impossible to reconcile. 17 Support for the plaintiffs' application is to be found in Burroughes v Abbott [1922] 1 Ch 86. A husband's settlement on trustees consequent upon an order of the Divorce Court directed the trustees to pay out of the income of the trust an annual annuity of a stated amount free of income tax. Rule 23(2) of the General Rules applicable to the Schedules to the Income Tax Act 1918 (UK) provided that every agreement for payment of interest, rent, or other annual payment in full without allowing any deduction of tax was void. Following the death of the husband, the wife obtained rectification of the settlement. Counsel who drafted it believed that the deed complied with the order of the Divorce Court. It was held at 95 that the Court had jurisdiction to rectify the deed to make it conform to that order. In lieu of the requirement to pay the specified sum free of income tax, the deed was amended to provide for the payment of an amount that, after the deduction of income tax, would leave clear the specified sum. 18 In Jervis v Howle and Talke Colliery Co Ltd [1937] Ch 67 a lease of the plaintiff's coal mine provided for payment of a royalty of 3d per ton free of tax thereby infringing the same rule. The solicitor who drew the lease gave no thought to the rule. When the parties executed the lease they thought that its effect would be that after deduction of income tax the plaintiff would receive 3d per ton of coal sold by the defendant and, following Burroughes, the lease was rectified. 19 The point about these authorities is that the parties were aware of the law in the sense that they understood that income tax was payable, but they were under a common mistake as the legal effect of the provisions in the instruments. 20 In Whiteside v Whiteside [1950] Ch 65, a husband executed a deed in favour of his former wife after dissolution of their marriage in which he covenanted to pay a specified sum per annum free of income tax up to but not exceeding a stated amount. This provision was in substitution for one drafted by the wife's solicitors that provided for the payment of such an amount that after the deduction of income tax not exceeding the stated amount would represent the specified sum. The husband sought rectification to restore the deed to the terms of the draft. 21 After the proceedings had been commenced but before the matter came before the Court, the parties executed a supplemental deed rectifying the error so that as between themselves the deed then took the form, and was thereafter to be treated as having always taken the form, that the obligation was to pay such an amount as, after deduction of tax, would leave the specified sum per annum. The Court of Appeal refused to grant rectification on the basis that there was no real issue between the parties. 22 At 74, Evershed MR commented on a passage from Kerr on Fraud and Mistake, 6th ed, at 620: "The passage is this: "Though the court will rectify an instrument which fails through some mistake of the draftsman in point of law to carry out the real agreement between the parties, it is not sufficient in order to create an equity for rectification that there has been a mistake as to the legal construction or the legal consequences of an instrument." I do not read that passage as meaning that if the mistake made is in using language to perfect an agreement which in law has some result different from the common intention, that is not a case in which there can be rectification. I do not read the passage as so stating, and I think, as at present advised, that if it did it would be too wide. I think it may well be that if the mistake has arisen from the legal effect of the language used that may provide a ground for the exercise of the court's reforming power. Subject however to that qualification, I think that the passage cited is correct" 23 In Joscelyne v Nissen [1970] 2 QB 86 the plaintiff, when his wife became ill, entered into an agreement with his daughter, the defendant, whereby she took over his business in return for which she was to pay certain household expenses. Following a dispute with her father, the defendant ceased to pay household expenses, maintaining that upon the proper construction of the agreement there was no obligation to do so. Rectification was ordered. An appeal was dismissed. At 98, Russell LJ on behalf of the Court of Appeal endorsed the following statement: "Where two persons agreed expressly with one another what was the meaning of a particular phrase but did not record their definition in the contract itself, if one of the parties sought to enforce the agreement on the basis of some other meaning, he could be prevented by an action for rectification." 24 In Re Butlin's Settlement Trusts [1976] Ch 251 a settlor executed a voluntary settlement that contained a provision settled by senior and junior counsel to empower a majority of the trustees to exercise any of the powers over the income or capital of the trust fund. It having been held that the clause conferred a power to act by majority only in the case of illness, infirmity or temporary absence abroad and not generally, the settlor sought and was granted rectification of his settlement. At 260, Brightman J said: "Furthermore, rectification is available not only in a case where particular words have been added, omitted or wrongly written as the result of careless copying or the like. It is also available where the words of the document were purposely used but it was mistakenly considered that they bore a different meaning from their correct meaning as a matter of true construction. In such a case, which is the present case, the court will rectify the wording of the document so that it expresses the true intention." Jervis and the above passages from Whiteside and Joscelyne were cited as authorities for the proposition. 25 In Meagher, Gummow and Lehane's Equity Doctrines and Remedies at par 26-070 the above passage from Brightman J is criticised as being too wide. It would appear to be in conflict with the proposition that if a document contains the very words the parties intended it to contain, no rectification is possible (Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410 at 451). 26 In Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, Sheller JA with whom the other members of the Court of Appeal agreed, cited the passage from Brightman J with apparent approval at 336. In that case, the directors of the corporate trustee of a discretionary trust were advised that an income tax advantage was available to them if the income of the trust was appropriated to a company. When one of the directors gave instructions to his solicitors he intended that a company be introduced as an income beneficiary and otherwise have no role or interest in the trust. 27 The solicitor was concerned to ensure that in amending the trust deed he did not cause any additional beneficiary to acquire an interest in the corpus of the trust or otherwise vary the rights of beneficiaries with existing vested interests because this would have brought about a resettlement, liable to duty under the Stamp Duties Act 1920. The corporate trustee executed a deed poll amending the trust deed by including in the definition of beneficiaries any other person or corporation nominated in writing by the trustee to be a beneficiary with the exception of the settlor and the trustee. 28 The effect of the amendment was that a company nominated as a beneficiary would be entitled to share in a distribution of capital. The deed thus operated as a conveyance of property made without consideration in money or money's worth and was exigible to ad valorem duty. Rectification to include in the power of appointment of capital and the default of appointment of capital provisions an exclusion of any person or corporation nominated by the trustee as a beneficiary under the new provision was granted and upheld on appeal. 29 Sheller JA conducted an extensive review of the authorities. At 340 his Honour expressed the view that essential to relief by rectification is a 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." 30 His Honour went on to give examples of careless copying, omission of some words of limitation and mistake as to the legal effect of the words used. His Honour was of the view that if a claimant convinced the Court that the instrument did not conform with the intention of the parties or of the party which made it and the intention was clear and precise and could be achieved by the language of an order for rectification, relief should be available. 31 At 341 his Honour cited with approval a proposition now contained in Spry, The Principles of Equitable Remedies, 6th ed, LBC Information Services, Australia, 2001 at 611: "A more difficult case arises where the parties are aware of the precise terms of the relevant part of the document but misapprehend their effect. Here it appears to be necessary to distinguish between two positions. The first position occurs where the concurrent intention, that is, the intention that the document is desired to effectuate, remains the dominant and governing intention. In this event it should not matter that the precise terms of the document have been seen by the parties, and rectification, where otherwise appropriate, should be ordered."
Dr Spry QC then cites the passage from Brightman J in Butlin's Settlement Trusts . 32 In his additional observations in Carlenka, Mahoney A-P expressed a similar view to Sheller JA. At 311 his Honour said: "In my opinion, the principle upon which rectification is granted involves two things: that the party (in the case of a unilateral transaction) or the parties (in the case of a transaction between parties) had at all relevant times an intention which was to be given effect by the document to be rectified; and that that document does not give effect to the transaction." 33 To like effect is the observation of McClelland A-JA at 345: "In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. In this context "effect" means the legal and factual operation of the instrument according to its true construction, but does not include legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind (for example, its liability to stamp duty)." 34 In Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 the parties to a dispute entered into terms of settlement. They provided that certain charges be determined by negotiation failing which either party should be at liberty to refer the determination of the charges to the Administrative Appeals Tribunal. That body lacked jurisdiction to determine such matters. The Victoria Court of Appeal disallowed rectification on the basis that the terms of settlement expressed the parties' common intention and the fact that the common intention could not be given effect did not justify an order for rectification. 35 That is not the case in the instant circumstances. Here the common intention was to satisfy the defendant by forever excluding a trustee from benefit under the trust. There was disconformity between that intention and the effect of the deed of appointment. Its exclusion of the provision that trustees could be beneficiaries was not irrevocable. 36 Reference has been made to the qualification stated by McClelland A-JA in Carlenka that rectification is not available where the discordant effect of the instrument is of a remote or collateral kind on a number of occasions (Prestige Land Developments Pty Ltd v Eagle Hotels Pty Ltd [1996] ANZ Conv R 208 at 209, Baird v B C E Holdings Pty Ltd (1996) 40 NSWLR 374 at 384, Victoria Gardens Developments Pty Ltd v Commissioner of State Revenue (1999) 99 ATC 4,683 at 4,697, Davis v Federal Commissioner of Taxation (2000) 171 ALR 654 at 667, Baxter v Federal Commissioner of Taxation (2002) 196 ALR 519 at 528). 37 Carlenka has been cited with approval on many occasions (Conagra International Fertiliser Co v Lief Investments Pty Ltd (1997) 141 FLR 124 at 143, Terceiro v First Mitmac Pty Ltd (1997) 8 BPR 15,733 at 15,738, Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529 at 568, Leibler, Leibant Investments Pty Ltd v Air New Zealand Ltd [1999] 1 VR 1 at 27, Trimmer v Lax (unreported, 9 May 1999, SC (NSW)), Furey v Mackne (unreported, 9 December 1999, SC (NSW)) at par 7, Palmer v Roads and Traffic Authority [2001] NSWSC 846 at par 271, Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2002] FCAFC 285 at par 172, Barak Pty Ltd v W T H Pty Ltd [2003] NSWSC 15 at par 23, LE Stewart Investments Pty Ltd v FC & M Legge Building Contractors & Developers [2003] NSWSC 193 at par 13). The decision is binding on me. 38 In my view, there was disconformity between the intention of the parties to the deed of appointment and the written instrument and the intention continued to the time of execution of the instrument. As I have said, that intention was to satisfy the defendant that trustees could never benefit under the trust. The deed of appointment did not achieve this intention because the exclusion of cl 3.2 was not irrevocable. 39 The plaintiffs have displaced the hypothesis arising from the execution of the deed of appointment that it expressed their true intention. That intention is clear and precise and can be achieved by the language in which rectification of the deed is sought. I grant relief in terms of par 1 and par 2 of the summons. 40 Paragraph 3 of the summons asked for costs. The defendant has not submitted to an order for costs. His submitting entry of appearance, except as to costs, was an appropriate course for him to take. He should not be burdened by an order for costs. The necessity for this application had nothing to do with the conduct of the defendant. There will be no order as to costs.
Last Modified: 07/09/2003 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.
Oates Properties Pty Ltd & Ors
Commissioner of State Revenue
(1919) 26 CLR 410
(1995) 41 NSWLR 329
(2001) 3 VR 526
(1996) 40 NSWLR 374
(2000) 171 ALR 654
(2002) 196 ALR 519
(1997) 141 FLR 124
(1998) 153 ALR 529
Declaration and rectification granted in the terms sought in paragraphs 1 and 2 of the summons. No order as to costs ([39]-[40]).