Plaintiff v Defendants

2 At the time the trust was established it was not anticipated that the domestic partner of a nominated discretionary beneficiary might not be married to that person. The trust deed made provision for the appointment of any person other than a prescribed category of persons to be made a beneficiary,

PROVIDED HOWEVER that any such person so appointed as aforesaid must be a relative by blood or marriage of someone or more of the Beneficiaries for the time being provided further that nothing in this covenant shall preclude or disqualify any person described in (i) and (v) hereof who was a the time of constituting this Deed a Beneficiary from being such a Beneficiary AND IT IS DECLARED that the effect of this covenant is that disqualification as herein meant refers to any persons to be added after the date hereof.

3 The deed of settlement also provides for a vesting day, which was -

... the day upon which shall expire the period of 50 years after the execution of this Settlement or the death of the last survivor of the descendants now living of His Late Majesty King George VI whichever shall be the shorter or such earlier date as the trustees may at any time not earlier than one year after the execution of this Settlement in writing or by oral declaration appoint in accordance with the provisions of Clause 3(b) hereof to be the Vesting Day.

4 By originating motion dated 16 April 2010, Automix 11 Pty Limited, as trustee of the McDonald Trust No 1, applied for relief under s 63A of the Trustee Act 1958 to vary the trust so as to correct what was perceived to be a typographical error in the definition of "Vesting Day" and to accommodate the inclusion, amongst persons who may be appointed as beneficiaries, those who may be a spouse or de facto spouse of any of the children or grandchildren of Malcolm McDonald. The typographical error in the definition of "Vesting Day" was said to be the erroneous reference to "the shorter" of 50 years or the "last survivor..." which was, in context, plainly intended as "the longer".

5 The application was supported by an affidavit of Malcolm McDonald sworn 30 March 2010, in which he set out the history of the settlement and deposed to discussions with his children in which certain variations to the trust were proposed.

6 The original trustee, Chateau Developments (No 2) Pty Ltd had been replaced as trustee by the adult children of Malcolm McDonald. They were Alexander Malcolm McDonald, Roderick McDonald and Kirstie Adele McDonald. They have now resigned and the applicant, Automix 11 Pty Limited appointed in their place. The circumstances in which Roderick, Alexander and Kirstie retired as trustees is set out in an affidavit of Roderick Joseph McDonald, sworn 30 March 2010. He deposed to advice received at the time of their appointment as trustees to the effect that unless removed as beneficiaries of the trust prior to their appointment, the Office of State Revenue would assess the change of trustee to ad valorem stamp duty on the gross value of the assets of the trust. Thus, if they wished to be trustees, they could not be beneficiaries. They accepted that advice and were removed as beneficiaries. With the appointment of Automix 11 Pty Limited as trustee, Roderick, Alexander and Kirstie may resume their position as beneficiaries.

7 During their term as trustees, distributions were made to Stacey Taylor who was then the domestic partner of Roderick. Ms Taylor and Roderick were not legally married and therefore Ms Taylor's appointment as a beneficiary was not authorised. While Ms Taylor and Roderick are no longer in a de facto relationship or cohabiting, the trustee has applied to vary the trust deed to overcome the otherwise erroneous appointment of Ms Taylor as a beneficiary, and to provide flexibility in the future to enable a domestic partner who is not married to be appointed a beneficiary. The trustee submitted that the proposed variation was a reflection of modern community attitudes and entirely consistent with the intention of the settler to enable a domestic partner to become a beneficiary. The circumstances in which Ms Taylor was appointed as a beneficiary and treated on an equal footing to other domestic partners is evidence that the McDonald family did not regard the absence of a formal marriage as a disqualification.

8 While the applicant for the variation is the present trustee, all family members are respondents to the application and have given their consent to the proposed amendments through their solicitor.

9 The application is made pursuant to s 63A of the Trustee Act 1958 which provides -

63A Power of Court to vary trusts

(1) Where property, whether real or personal, is held on trusts arising, whether before or after the commencement of this Act, under any will settlement or other disposition, the Court may if it thinks fit by order approve on behalf of -

(a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of minority or other incapacity is incapable of assenting

...

any arrangement (by whomsoever proposed and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees or managing or administering any of the property subject to the trusts:

Provided that except by virtue of paragraph (d) of this subsection the Court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person.

10 The approval of the Court is sought pursuant to s 63A(1)(a). The class of discretionary beneficiaries includes minors and potentially unborn beneficiaries. The provisions of the Act enable the Court to look afresh at the terms of the trust where circumstances have arisen which may not have been foreseen or foreseeable by the settlor.[1] The provisions of s 63A are a replication of s 1(1) of the Variation of Trusts Act 1958 (UK) introduced in order that a court might deal with a situation where the original disposition was intended to endure according to its terms but which, in light of changed attitudes and circumstances, was reasonable to vary.[2] There is no similar legislation in New South Wales and it is for that reason a Victorian trustee has been appointed to ensure that this court has jurisdiction to vary under the Victorian legislation.

11 I was referred to authority to the effect that when exercising the power to vary, this Court has an unlimited jurisdiction which applied to any settlement whatever the law governing that settlement might be. That may be so, although it seems to me that a court would look for some connection between the trust, its beneficiaries and jurisdiction. In the present case, with the appointment of a Victorian resident company, there is no need to further investigate that connection.

12 The power to vary is stated in broad terms and there is no reason to think that, in an appropriate case, the variation may not take affect from the commencement of the trust. Such orders have been employed where justice requires it.[3] The variation proposed by the trustee and supported by the family would enlarge the class of potential beneficiaries and to that extent may create a perceived risk to infants and unascertained or unborn persons. Plainly, s 63A enables the court to vary a trust which has an impact on unascertained or unborn persons.[4] While the position of unborn infants must be taken into account, their real interest is in the due administration of the trust. They have no interest, as such, in trust assets.

13 In the present case, the Malcolm McDonald No 1 Trust is a family trust. The discernable purpose is to benefit the family of Malcolm McDonald. He was the person initiating its establishment. He is the appointor. His views and the views of the respondents, his family members, should be paramount if the variation is designed to have the effect of overcoming a failure on the part of those preparing the trust deed to accommodate changing community attitudes towards the composition of a family which may include a de facto spouse.

14 The trustee also applied for an order to the effect that the distributions made to Ms Taylor, as de facto spouse of Rodney McDonald, should not be treated as a breach of trust. The evidence establishes that the trustees at the time of the breach were unaware of any such limitation upon distributions. They assumed that a domestic partner, married or otherwise, was within the range of beneficiaries able to be appointed under the trust. That was not an unreasonable assumption. An order treating the distributions to Ms Taylor as valid seems unnecessary if the trust is varied nun pro tunc. Nevertheless, the application is pressed on a "belt and braces" basis.

15 Having regard to the nature of the trust and the circumstances in which it was established, the way in which it has been administered and the informed consent of the members of the McDonald family, I am persuaded that it is appropriate to exercise the power available to the court under s 63A to vary the trust as from its date of creation in the terms proposed. While it may not be necessary to validate the distributions to Ms Taylor, it seems a desirable step if only as an acknowledgment of breach that occurred in unintended circumstances.

16 In my opinion the definition of "Vesting Day" contains an obvious error. The trustee sought to correct the error as a matter of construction or by means of rectification. A plain reading of the definition would indicate that the word "shorter" does not make sense in a context where it operates in respect of two dates followed by the expression of a power in the trustee to fix an "earlier date". In my view, the definition was intended to provide an outer limit, being the longer period measured by the two dates. The reference to "last survivor" would hardly be employed were that not so.

17 In Saxby Soft Drinks Pty Ltd v George Saxby Beveridges Pty Ltd,[5] Brereton J stated that rectification should not be ordered where the document used terminology which literally made no sense, and that one should simply construe the words in the manner which made sense. In that case, his Honour, dealing with an almost identical definition of Vesting Day, said,[6]

In order to reach the conclusion that what was intended was the longer of a period of 21 years after the date of execution or a period of 21 years after the death of the last survivor of the descendants of the said King, I do not need to resort to extrinsic evidence of the intention of the parties at the time of entering into the trust deed. So much is manifest, I think, on the face of the deed itself, and from the ordinary purpose of including a King George VI clause in a trust deed. In those circumstances, I do not think it is necessary to resort to rectification. The result can be reached by a process of construction. In a passage which has been judicially approved (see Bowler v Hilda Pty Ltd (2001) 112 FCR 59; 183 ALR 81; [2001] FCA 342 (Drummond J)), the learned authors of Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th ed) write (at [26-040]):

Proceedings for rectification ought not be brought if whatever mistake appearing in the written instrument is of the kind that the true meaning of the document could be ascertained as a matter of construction without recourse to extrinsic evidence. Courts both of law and of equity regularly insert, delete, alter and interpret words in such a fashion as to make the document sensible, without necessary recourse to any doctrine of rectification. Thus, in Wilson v Wilson [1854] EngR 513; (1854) 5 HLC 40 at 67; [1854] EngR 513; 10 ER 811 at 822, Lord St Leonards had no difficulty in reading "Mary" for "John" and in St Edmundsbury Board of Finance v Clark [1973] 3 All ER 902 at 915; [1973] 1 WLR 1572 at 1585, Megarry J read "coloured blue and red" instead of "coloured blue". In Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 the High Court of Australia was able to construe clause 8 of a contract for sale on a parcel of land reading:

The usual conditions of sale in use or approved of by the Real Estate Institute of New South Wales relating to sales by approved contract of land held under the Crown Lands Act shall so far as they are inconsistent herewith be deemed to be embodied herein.

So that "inconsistent" was read as meaning "consistent". As their Honours, Dixon CJ and Fullagar J said in their joint judgment (at 426-7):

There is a superficial difficulty in clause 8, because it purports to incorporate a set of conditions so far as they are inconsistent with what has been specifically agreed upon. No real difficulty, however, is created. Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency. Here it would be indeed absurd to suppose that the parties, having expressed their agreement on a number of special and essential matters, should intend to incorporate by reference terms inconsistent with what they had specially agreed upon. What they must clearly have intended is to incorporate a set of general conditions except so far as they were inconsistent with what they had specially agreed upon, and clause 8 must be read as if it is said "consistent" or "not inconsistent".

As those authors point out, the decision of the Privy Council in Watson v Phipps (1985) 63 ALR 321; 60 ALJR 1, is to similar effect; see also Ex parte Whelan [1986] 1 Qd R 500 and Rattrays Wholesale Ltd v Meredyth-Young & A'Court Ltd [1997] 2 NZLR 363. In my opinion, this case falls clearly within the territory described by Dixon CJ and Fullagar J in the passage quoted above. It would be absurd to suppose that the parties intended the Royal lives clause to operate as an actual or potential abridgement of the 21 year period otherwise fixed, as opposed to an extension of it. There would simply be no purpose in including it in that event.

18 I propose to adopt the approach taken by Brereton J in Saxby. There is plainly an error of expression in the definition of "Vesting Date". The word "shorter" should be read and construed as if meaning the "longer period".

19 I will make the following orders, reserving to the respondents liberty to apply because the form of the orders does not precisely correspond with the signed form of consent filed with the court on their behalf.

[1] Re Greenwood [1987] NZHC 202; [1988] 1 NZLR 197, 211-12.

[2] Allens v Distillers Co (Biochemicals) Ltd [1974] 2 WLR 481, 491.

[3] Emanuele v ASC [1997] HCA 20; (1997) 144 ALR 359, 372; McKensey v Hewitt [2004] NSWSC 636; (2004) 61 NSWLR 54.

[4] Yunghanns v Candoora No 19 Pty Ltd, unreported, Supreme Court of Victoria, 15 December 1999, Gillard J [142]; Nicholas v Equity Trustees and Executors Agency Co Ltd, unreported, Supreme Court of Victoria, 27 March 1996, Harper J.

[5] [2009] NSWSC 1486 ('Saxby').