Equity - General principles - Mistake - Equitable remedies - Rectification - Where mutual mistake - Mistaken vesting date in discretionary family trust deed.

Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336; Simic v New South Wales Land and Housing Corporation [ 2016] HCA 47, 260 CLR 85; Sanwick Pty Limited v Kalyk [2016] NSWSC 100; Re George Hardi Family Trust [2021] NSWSC 1584, applied.

Judgment Number: [2022] TASSC 32

CHANTAL SUZANNE WILLIAMS v DUERINCKX ENTERPRISES PTY LTD

ACN 070 085 059 (as trustee for the Duerinckx Futures Family Trust)

1. In this action the plaintiff, Chantal Williams, seeks an order rectifying the terms of a discretionary family trust deed of settlement made 2 August 1995, or alternatively an order under the Variation of Trusts Act 1994, s 13, varying the terms of the trust. The order is sought because the clause of the deed which deals with termination, although the clause is poorly drawn, seems to provide that the trust terminated 21 years from the date of the deed, thus on 2 August 2016. For the following reasons I am satisfied that deed, through mistake, does not reflect the intention of those responsible for the creation of the document that the trust would continue for at least Mrs Williams' life. It should be rectified. I would also have varied the terms of the trust under the legislation but, given that I will order the primary relief, the alternative order is unnecessary.
2. The circumstances emerge from evidence contained in affidavits sworn or affirmed by the plaintiff, her former husband John Duerinckx and by her current solicitor. In 1995 Mrs Williams was known as Chantal Duerinckx. She was then aged 30 and was married to Mr Duerinckx who was then aged 29. They had just moved from Queensland to Tasmania together with their two children aged under five. It was Mrs Williams' intention to establish and operate a childcare business. She discussed her plans with her parents, who operated their own business through a family trust. She learnt about alternative business structures in a business course and sought advice from her accountant before deciding to establish a family trust with a corporate trustee.
3. Mrs Williams consulted a solicitor, Mr N Day, of the firm in Ulverstone then called Walsh Day Fitzgerald. She instructed Mr Day of her intention to operate the childcare business and "run it for the long term" as her and her family's "primary means of income". She told Mr Day that she wanted to operate the business within a discretionary family trust structure with her and her spouse and children as the beneficiaries. Duerinckx Enterprises Pty Ltd (Duerinckx Enterprises) was incorporated on 28 June 1995. Mrs Williams was secretary. She and her husband were the directors and each owned one of the two issued shares.
4. Mr Day prepared the trust deed. The deed relevantly provided that:
   • the settlor was Melinda Williams;
   • the trustee was Duerinckx Enterprises;
   • the name of the trust was the "J Duerinckx Family Trust";
   • the appointor of the trust was Mr Duerinckx;
   • the beneficiaries included Mr and Mrs Duerinckx (as Mrs Williams then was) and "the spouses, widows, widowers, parents, grandparents, brothers, sisters, children and grandchildren of the primary beneficiaries...".
5. Clause 13 of the trust deed is entitled "Winding up of Trust" and relevantly provided:

The Trust shall be wound up and terminate on the first to occur of:

(a) the date which the trustee with the written consent of the Appointor determines; or

(b) the day being the day upon which the period commencing on the day hereof and continuing until the expiration of twenty one years."

1. The deed provided for amendment to its terms, but by clause 10(3), it relevantly provided that "no alteration, variation or revocation shall ... extend the termination date ...".
2. The trust deed gave the trustee powers in relation to the trust fund, including to distribute income to the beneficiaries "in such shares or proportions and from such category or categories of income as the trustee in its discretion may determine." Clause 13 of the trust deed also provided for vesting of the assets on termination of the trust. After payment of the debts and liabilities of the trust, the trustee had power to "distribute the income and capital of the trust in any manner provided for by the deed". However, to the extent that the capital of the trust was not so distributed, the trustee was to stand possessed of the balance for Mr and Mrs Duerinckx, as default beneficiaries, in equal shares as tenants in common.
3. In accordance with Mrs Williams' intention, her child care business was commenced, and operated by Duerinckx Enterprises in its capacity as trustee of the family trust. In July 1998 Mr and Mrs Duerinckx were divorced. Mr Duerinckx had already, on 14 December 1997, resigned as director of Duerinckx Enterprises. As part of the family law property settlement Mr Duerinckx agreed that he would cease to be an appointor and beneficiary of the trust. By deed dated 14 September 1998 Mr Duerinckx relinquished his position as appointor and appointed Mrs Williams in his place. By oversight he was not then removed as beneficiary or default beneficiary.
4. By deed of variation dated 17 December 2004 the name of the trust was changed to the Duerinckx Futures Family Trust.
5. Mrs Williams' plans that the childcare business would succeed and continue for the long term as her life's work came to fruition. Duerinckx Enterprises, in its capacity as trustee of the family trust, currently owns four properties in Tasmania and operates 17 child care centres in Tasmania and Victoria. It is party to business agreements, leases and licenses as well as grant agreements with government departments. The trustee company is registered under various regulatory regimes. The turnover for the 2020 financial year exceeded $5m.
6. At some time prior to 2021 Mrs Williams separated from her current husband. She consulted her solicitors and instructed them to revise her will. In the course of doing so, Mrs Williams' attention was drawn to the terms of clause 13 of the trust deed, the termination clause. She was advised of the possibility that, according to the terms of that clause, the assets of the trust had vested five years earlier on 2 August 2016. I infer that, after having received advice about the terms of the trust deed, it also became apparent that the 1998 agreement that Mr Duerinckx would also be removed as beneficiary and default beneficiary of the trust had not been put into effect. On 23 July 2021 Mr Duerinckx and Mrs Williams executed a deed of confirmation which expressly confirmed that on and from 14 September 1998 Mr Duerinckx was removed as a beneficiary of the trust and a default beneficiary on the vesting and winding up of the trust.
7. The written and oral submissions of counsel for the plaintiff as to the availability of rectification in these circumstances should be accepted. Rectification of a document which provides for legally enforceable rights, entitlements and obligations is available to persons whose interests are affected where those responsible for the creation of the document coming into existence shared an "actual or true common intention" as to the intended effect of the documents, which through common mistake was not reflected in the document: Simic v New South Wales Land and Housing Corporation [ 2016] HCA 47, 260 CLR 85. At [103]- [104] Gageler, Nettle and Gordon JJ stated:

"Rectification is an equitable remedy, the purpose of which is to make a written instrument 'conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately'. For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an 'agreement' between the parties in the sense that the parties had a 'common intention', and that the written instrument was to conform to that agreement. Critically, it must also be demonstrated that the written instrument does not reflect the 'agreement' because of a common mistake. Unless those elements are established, the 'hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties' cannot be displaced.

The issue may be approached by asking - what was the actual or true common intention of the parties? There is no requirement for communication of that common intention by express statement, but it must at least be the parties' actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party." (Footnote citations removed)

1. In Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336 at 350, Mason J observed:

"What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. And there has been a firm insistence on the requirement that the mistake as to the writing must be common to the parties and not merely unilateral, except in cases of a special class."

1. In Re George Hardi Family Trust [2021] NSWSC 1584, Sackar J determined at [17] that rectification of a voluntary settlement in the form of a trust deed is available, and as to the "special class" referred to by Mason J in Maralinga, applied the statement of Stevenson J in Sanwick Pty Limited v Kalyk [2016] NSWSC 100 at [16]:

"An example of the "special class" to which Mason J referred is a voluntary settlement creating a trust where the settlor has no independent intention as to how the trust is to operate and who acts on the instruction of, or at the request of the proposed trustee; or, as here, the person who in substance stands behind the trustee."

1. Sackar J also applied the statement of White J (as his Honour then was) in Public Trustee v Smith [2008] NSWSC 397:

"For the trust deed to be rectified there must be clear and convincing evidence that at the time the trust deed was executed the trustee and the settlor had an actual intention as to the effect which the deed was intended to create which was different from the effect which the instrument did have in a clearly identified way (Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 345). It must be demonstrated with clarity that the parties had a sufficiently precise intention that the court can determine both the substance and the detail of the precise variation to be made to the wording of the instrument (Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 at 407; Muriti v Prendergast [2005] NSWSC 281 at [137])."

1. The exact form of words in which the common intention is to be framed need not be established provided the substance is clearly identified: Queenfield Pty Ltd v Gordon Finance Pty Ltd [2020] VSCA 282.
2. I am satisfied that there is clear and convincing proof that the applicable intention is that of Mrs Williams, that the settlor of the trust had no independent intention as to how it was to operate, that Mrs Williams' actual intention at the time the trust deed was executed was that the trust would operate for at least her life, and that her intention as to the operation of the trust should be imputed to the trustee. Those inferences may, in this case, be objectively inferred from words, actions and conduct.
3. Due to the passage of time, the firm of solicitors which prepared the deed no longer has any documents concerning creation of the trust. I am satisfied that, when the trust was established, it was Mrs Williams who was instrumental in establishing the trust, and she was the person primarily responsible for instructing Mr Day to prepare the deed. It was her intention to commence the child care business and to operate it within a discretionary family trust structure with a corporate trustee. She was the moving force behind the creation of the company and the trust. She was secretary and a director of the company. Her husband was also a director but I am satisfied that it was her intention which was the governing and predominant intention. Those facts may safely be inferred because, in an affidavit read in these proceedings, Mr Duerinckx agrees that he had no substantive involvement in establishing the trust and the trustee company, or in establishment of the business. He deposes that he cannot recall who instructed Mr Day but does not say anything contrary to Mrs Williams' evidence that all of the instructions of substance came from her. Mrs Williams believes that her husband was made the original appointor through custom rather than by instruction to Mr Day. The original name of the trust came from Mr Duerinckx as a result of a later phone call from Mr Day about which Mrs Williams was not consulted. In the circumstances which existed at the time, the identity of the appointor and the name of the company were not matters of real consequence, and do not point against the inference that Mrs Williams was in reality the directing mind and will of the corporate trustee. She later changed the company name.
4. It may also be safely inferred, and I so find, that the settlor was a nominal settlor. The evidence establishes that in 1995 Melinda Williams was a close friend of Chantal Williams. This was a voluntary settlement by way of trust deed. It did not involve a genuine negotiation between the settlor and the trustee. The evidence of Chantal Williams is that Mr Day advised her to find a person who was not a family member to be settlor and nothing would be required of that person other than he or she sign the deed. Melinda Williams had no role in instructing Mr Day, no input into the contents of the deed and no role in the operation of the trust or business. She either had no relevant intention as to the contents of the trust, or intended that the deed would operate in whatever manner the trustee, or Mrs Williams who was the person who stood in substance behind the trustee, intended it would operate. Melinda Williams did not swear or affirm an affidavit, but confirmed in an email to the plaintiff's current solicitor that her role as settlor was, in substance, as I have just described.
5. When regard is had to the nature of the business Mrs Williams intended, and the nature and purpose of the trust, there was no sensible reason that the trust would terminate after 21 years. Included among the discretionary beneficiaries were her children, then aged under five, and any grandchildren. The law did not require such a vesting period as clause 13 of the deed seems to provide. The Perpetuities and Accumulations Act 1992 came into force on 7 August 1992 and applied to instruments executed after commencement of the Act. It governed the common law rule against perpetuities which provided that no disposition of property is valid unless it vested, if at all, not later than 21 years after some life in being at the creation of the interest. The Act provided, by s 6(4), that a trust deed may still provide for a perpetuity period under the common law rule but also allowed for a fixed perpetuity period of up to 80 years from the date of establishment.
6. The inference of Mrs Williams' intention at the time of the deed may also be drawn from subsequent events. The evidence leads to the irresistible conclusion that Mrs Williams believed that the trust was continuing beyond 2016. In her affidavit she deposes that, until early 2021 she was not aware of any potential difficulty. The business was operating on the basis that the trust had continued in existence. With the assistance of her accountants she had prepared her personal, trust and business tax returns and financial statements every year since the creation of the trust in 1995, including for the years ended 2017, 2018, 2019 and 2020.
7. The inference that clause 13 of the deed mistakenly did not reflect the intention of the parties is supported by the inelegant way in which it is drawn and the context. The words "the day being the day upon which the period commencing on the day hereof and continuing until the expiration of twenty one years" seek to identify a day but then refer to a period. The terms appear to be muddled or incomplete. Considered with the clause prohibiting extension of the vesting date, a vesting date which is well within the perpetuity period, well within Mrs Williams' normal working life and, still more so, within her life expectancy makes little sense. Those matters not only support the contention that the clause is mistakenly drafted and does not reflect the intention of the parties, but would also justify an order varying the terms of the trust under the Variation of Trusts Act 1994, s 13.
8. Finally, I note that I am satisfied that it is appropriate to make the order sought in the absence of a contradictor. As the sole default beneficiary, Mrs Williams is the only person whose interests will be adversely affected by the order once made. If the deed is rectified, the state of affairs which would have resulted in vesting of the trust assets in her will no longer exist. Of course, she also has an interest in avoiding all of the business and regulatory consequences which would result from premature vesting. The Australian Taxation Office has been notified of these proceedings and has not sought to be heard. However, the making of an order could only be of benefit to the discretionary beneficiaries of the trust, as a class.
9. It is appropriate to also order that the plaintiff be indemnified out of the assets of the trust for her costs of the action, which was brought to rectify an obvious error and to facilitate the intended operation of the trust. I order:

(a) the trust deed dated 2 August 1995 be rectified by deleting sub-paragraph (b) of clause 13(1) and substituting the following sub-paragraph:

"(b) the date being 21 years after the death of Chantal Suzanne Williams."

(b) the plaintiff is to be indemnified out of the assets of the trust for her costs of and incidental to this action.