Doma ACT Pty Ltd v LN Sydney Pty Ltd
[2024] ACTSC 270
•30 August 2024
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Doma ACT Pty Ltd v LN Sydney Pty Ltd |
Citation: | [2024] ACTSC 270 |
Hearing Date: | 26 August 2024 |
Decision Date: | 30 August 2024 |
Before: | McWilliam J |
Decision: | (1) The resolution made on 30 June 2022 by the directors of Doma ACT Pty Limited ACN 116 939 916 as trustee of the Doma Finance Trust is rectified so that, in the second and third bullet points in paragraph 3 under the heading “Allocation of Trust Income for the Year”, it is taken to always have read as follows: (i) (a) Delete the words “LN Sydney” where they appear; and (ii) (b) Insert in their place “Little National Sydney Pty Limited”. |
Catchwords: | EQUITY – RECTIFICATION – mistake in recording name of corporate entity in unilateral instrument – company resolution to distribute ordinary income to corporate entity – where clear and convincing proof of makers’ intentions corroborated by contemporaneous documents – where resolution does not give effect to makers’ intention – where mistake clearly identifiable – resolution rectified |
Cases Cited: | Commissioner of Stamp Duties (NSW) v Carlenka Pty Limited (1995) 41 NSWLR 329 Cherry Tree Investments Ltd v Landmain Ltd [2013] Ch 305 Craddock Brothers v Hunt [1923] 2 Ch 136 Domazet v Jure Investments Pty Ltd [2016] ACTSC 33 Energy World Corporation v Maurice Hayes and Associates Pty Limited [2007] FCAFC 34; 239 ALR 457 GE Capital Finance Australasia Pty Limited v Commissioner of Taxation [2011] FCA 849; 219 FCR 420 Osborne v Smith (1960) 105 CLR 153 Re Canavan [2017] HCA 45; 263 CLR 284 Re Butlin’s Settlement Trusts [1976] Ch 251 |
Parties: | Doma ACT Pty Limited as trustee for the Doma Finance Trust ( Plaintiff) LN Sydney Pty Limited as trustee for the LN Sydney Discretionary Trust (First Defendant) Little National Sydney Pty Limited (Second Defendant) |
Representation: | Counsel M J O’Meara SC ( Plaintiff & Defendants) |
| Solicitors Clayton Utz ( Plaintiff & Defendants) | |
File Number: | SC 110 of 2024 |
McWILLIAM J:
Overview of the application
1․By this proceeding, the plaintiff, Doma ACT Pty Ltd (Doma ACT), seeks equitable relief for mistake, in the form of rectification. The type of mistake involved is the mis-recording of the name of a corporate entity in a resolution passed by Doma ACT.
2․Doma ACT is a corporate trustee for the Doma Finance Trust (Finance Trust). It is part of a corporate group of over 120 entities, collectively described as the Doma Group. The Doma Group also includes the first defendant, LN Sydney Pty Limited (LN Sydney), and the second defendant, Little National Sydney Pty Limited (Little National Sydney).
3․The instrument for which rectification is sought is a company resolution made on 30 June 2022 by the two directors of Doma ACT, Ivan Domazet, and his son Jure Domazet (Resolution). The Resolution effected a distribution of ordinary income in the sum of $10 million to LN Sydney, itself a trustee for the LN Sydney Discretionary Trust, which owns the building and assets comprising the Little National Hotel Sydney.
4․As will be seen, that was a mistake. What was intended was that the distribution of $10 million be made to Little National Sydney, which is the company that manages the Little National Hotel Sydney. Having been taken through the paper trail leading up to the Resolution, the mistake appears to have arisen initially because of data entry limitations in computer technology, which confined the number of characters for company names. The shortened names of the companies were then also referred to in shorthand by Doma ACT’s financial advisers and accountants. Emails were sent to others who were responsible for drafting the resolutions. They were not privy to the accounting software abbreviations, nor were they required to be across the detail of the underlying accounts. Due to the similarity of the names of the two defendants, they understood the reference to be to the discretionary trust and inserted LN Sydney on the Resolution.
5․Each of the defendants was an eligible beneficiary of the Finance Trust and it should be made clear at the outset that the relief sought in these proceedings will not result in the transfer of any money between those defendants. That is because, notwithstanding the words of the Resolution referred to LN Sydney, the distribution was in fact made to Little National Sydney, in accordance with a detailed spreadsheet that the directors of Doma ACT say reflected their intention at the time the Resolution was made (and the understanding of their accountants and lawyers). In short, the income distribution was made to the intended entity (Little National Sydney), but the paperwork giving legal effect to that distribution does not record what occurred.
The Resolution sought to be rectified
6․The signed minutes of the meeting of Directors of Doma ACT record the terms of the resolution. They record the following (emphasis in the original):
The Directors RESOLVED pursuant to the powers in clause 4 of the Trust Deed and all other powers enabling that the Trust Income be allocated to Beneficiaries of the Trust in the following manner:
1. All (100%) of the Capital Gain be wholly allocated, applied and set aside specifically to and for LN Sydney Pty Ltd as trustee of LN Sydney Discretionary Trust (defined as LN Sydney) such that LN Sydney becomes presently and specifically entitled to the Capital Gain and to record LN Sydney’s present and specific entitlement including the Capital Gain in the Trust’s accounts and records;
2. All (100%) of the Franked Dividend be wholly allocated, applied and set aside specifically to and for Doma Australia Holdings Pty Ltd A.C.N. 154 139 189 (Doma Australia Holdings), a company the sole director of which is Jure Domazet (a child of Ivan Domazet and within the class of Beneficiaries of the Trust) such that Doma Australia Holdings becomes presently and specifically entitled to the Franked Dividend and to record Doma Australia Holding’s present and specific entitlement including the Franked Dividend in the Trust’s accounts and records;
3. All (100%) of other income (other than a Capital Gain or Franked Dividend) of any other category or characteristic (Other Income) be allocated to, applied, and set aside in the following manner:
·the first $120,000 of Other Income to Nicola Domazet;
·to the extent the balance of Other Income after taking account of the allocation to Nicola Domazet (Balance) is $10 million or a lesser amount, the whole of the Balance to LN Sydney;
·to the extent the Balance of Other Income is an amount exceeding $10 million:
i. $10 million to LN Sydney; and
ii. The excess above $10 million to Doma Australia Holdings.
Relief sought
7․The second and third dot points in the Resolution refer to $10 million being allocated to “LN Sydney”. Doma ACT has brought the proceeding in this Court to rectify the Resolution which forms part of its company records as at 30 June 2022, so that the paperwork accords with what was intended, and with what then occurred. The nature of the rectification is to replace the words “LN Sydney” in the Resolution with the words “Little National Sydney Pty Limited”.
The absence of a contradictor
8․During the hearing on 26 August 2024, the first and second defendants indicated that they submitted to the orders of the Court and subsequently filed submitting appearances.
9․That has brought about a situation where there is an absence of a sufficient contradictor. In such circumstances, to ensure that all relevant arguments are presented, the Court may appoint an amicus curiae. An example of such a case is Re Canavan [2017] HCA 45; 263 CLR 284 at [7], where the High Court appointed an amicus to present complex legal arguments.
10․Two reasons militated against appointing a contradictor here. The first was that those whose interests may be adversely affected have all been notified. The trust deeds of the Finance Trust and the LN Sydney Discretionary Trust were before the Court. They disclose that the beneficiaries of the plaintiff and the first defendant are corporate entities or individuals either associated with, or related to, the directors of the plaintiff. The second defendant is not a trustee company.
11․The entity who was most likely to be affected or interested in the rectification of the Resolution was the Australian Taxation Commissioner (Commissioner). The evidence before the Court established that the Commissioner had been notified, did not seek to be heard in the proceeding or joined as a party, and had expressly confirmed in written correspondence that if the Court acceded to the proposed rectification, the Commissioner will give effect to the orders made.
12․Where a person who is interested in the outcome of trust proceedings has been given notice of those proceedings and a reasonable opportunity to intervene in them, that person may be bound by the outcome. This is the case even if that person has not been formally made a party to those proceedings: see Osborne v Smith (1960) 105 CLR 153 at 158-159.
13․The second reason was that, through the diligence of the solicitors and senior counsel acting for the plaintiff, I was satisfied that all relevant arguments were presented, including the presentation of evidence potentially adverse to the plaintiff’s case. I was therefore satisfied that the appropriate course was to proceed without a contradictor.
Legal principles
14․Rectification is an equitable remedy for mistake. As submitted by the plaintiff, the remedy is available, not only in the case of bilateral instruments (such as contracts), but also in the case of unilateral documents such as deeds, resolutions (the instrument under consideration here) and other forms: Re Butlin’s Settlement Trusts [1976] Ch 251 at 260-262; GE Capital Finance Australasia Pty Limited v Commissioner of Taxation [2011] FCA 849; 219 FCR 420 (GE v FCT) at [105] per Gordon J, relying on Commissioner of Stamp Duties (NSW) v Carlenka Pty Limited (1995) 41 NSWLR 329 (Carlenka) at 345.
15․The Court was taken to Carlenka during oral argument. The availability of relief in rectification depends upon “disconformity between the form or effect of the document executed and the intention of the parties or party who executed it”: Carlenka at 336 per Shellar JA.
16․In the course of agreeing with Shellar JA, Mahoney AP said at 331:
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 that transaction.
What constitutes “intention” and “effect”?
17․In Australia, the Court considers the actual intention of the maker of the document, sometimes referred to as the subjective intention: Simic v New South Wales Land and Housing Corp (2016) 260 CLR 85 at 102; SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132 at [114].
18․In GE v FCT, in the course of referring at [106]-[108] to rectification as turning on the subjective intentions of the maker or makers of a document, Gordon J (when sitting in the Federal Court), stated that the intention of the ‘primary’ maker was the relevant intention.
19․A party’s “intention” has been described as “that which is subjectively foreseen and intended to be effected by the document” or “[t]hat which subjectively the parties sought to achieve and thought they achieved by the execution of the document”: Carlenka at 332 per Mahoney AP.
20․Proof of intention “must be convincing but is not limited to evidence of outward acts”: Carlenka at 336 per Shellar JA.
21․As to “effect”, McLelland AJA (also agreeing with Shellar JA) stated in Carlenka at 345 (emphasis added):
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).
22․Among the authorities drawn to the Court’s attention discussing the overarching principles was the judgment of the Full Court in the Federal Court of Australia, Energy World Corporation v Maurice Hayes and Associates Pty Limited [2007] FCAFC 34; 239 ALR 457, which approved Carlenka at 461, [13].
23․In this jurisdiction, Mossop J in Domazet v Jure Investments Pty Ltd [2016] ACTSC 33 stated at [40]:
The simplest kind of case in which rectification is appropriate is where a provision that was intended to be included in a document is inadvertently omitted, where an unintended provision is included or where a provision is inadvertently misexpressed.
24․In the present case, the Court does not need to travel beyond consideration of the simplest kind of case. It is clear that, where a document uses words different from those which the maker or makers intended, rectification is available. Here the Resolution named one corporate entity as the recipient of an income distribution, when the makers of the Resolution intended the instrument to name another corporation with a similar name.
The date from which the remedy operates
25․If the remedy of rectification is granted, the instrument is reformed in fact. The instrument takes effect in its rectified form retrospectively, from the date at which the document was executed (as opposed to the date the order is made): see Craddock Brothers v Hunt [1923] 2 Ch 136 at 151; Cherry Tree Investments Ltd v Landmain Ltd [2013] Ch 305 at [121]. That is significant here because of third parties who may be affected by the tax consequences at a particular point in time (such as the Commissioner).
Issue for determination
26․Applying the above authorities, the two questions that arise are:
(a)What was the intention of the makers of the Resolution when they executed the instrument; and
(b)Do the terms of the Resolution as expressed give effect to the makers’ intention?
The intention of the makers of the Resolution
27․The plaintiff relied upon five affidavits. Two were from the directors who executed the Resolution, Messrs Ivan and Jure Domazet. Two were from the internal finance team for the Doma Group (Mr Nam Nguyen, the Financial Controller – Investments at the time, and Mr Sachin Mehta, the Group Financial Controller at the time, now the Chief Financial Officer of the Doma Group). The final affidavit was from Ms Vanessa Williams, who was employed by the external accountants for Doma and who had assumed the daily carriage of the compliance work in relation to Doma Group since 2021.
28․Mr Ivan Domazet deposed to being one of two directors, and the chairman, of the plaintiff. He is now retired, and his son has effectively taken control of the Doma Group. His evidence was that on 30 June 2022, he executed the Resolution at a scheduled directors’ meeting with his son. His intention in signing the Resolution was to give effect to the tax planning trust distribution for the relevant financial year, which his son had developed and approved in consultation with the internal and external advisers, and which, on the strength of his son’s advice, he had agreed to. He did not scrutinise the words of the Resolution, because he assumed that it reflected the trust distribution strategy that had been planned.
29․Mr Jure Domazet deposed to being the other director of the plaintiff and his evidence was consistent with that of his father. To the extent that anything turns on who was the controlling mind or primary maker of the instrument sought to be rectified, it is Mr Jure Domazet who meets that description. He stated that before he executed the Resolution, he held a financial and tax planning meeting in about mid-June with the internal finance team for the Doma Group and Ms Vanessa Williams from the group’s external accountants.
30․At that planning meeting, he reviewed the spreadsheet which contained the proposed financial distributions for the Doma Group. From the evidence it emerged that the Finance Trust performed a function akin to an internal banker and at tax time (the end of the financial year) Mr Jure Domazet decided where to direct the profits, following his financial and tax advice.
31․He knew that the operating company of the Little National Hotel Sydney (Little National Sydney) had experienced significant, extraordinary losses, due to the COVID-19 pandemic lockdowns in Sydney which had occurred throughout 2021 and ended in February 2022. While he no longer has a specific memory of discussing the $10 million distribution from the plaintiff to Little National Sydney, he does recall approving the distributions that were contained in the relevant spreadsheet, which he had before him at the planning meeting, and which specifically recorded that a $10 million distribution was to be directed by the Finance Trust to “Little National Sydney Pty Ltd”.
32․Importantly, he deposes to the Resolution which he later executed with his father as not reflecting his intention at the time. His intention in passing the numerous company resolutions that he signed on 30 June 2022 was to give effect to the strategy discussed and agreed to at the financial and tax planning meeting in mid-June 2022.
33․He states that the words of the Resolution were inconsistent with the Doma Group’s financial and tax planning strategy as set out in the spreadsheet because LN Sydney did not have significant tax losses during the 2022 financial year. A distribution to LN Sydney would have put LN Sydney in a profit-making position where it would be liable for income tax. The intention of his tax planning strategy was that the distributions of income were to entities who had losses, with the intended effect of the distribution being to offset the Doma Group’s income tax liabilities.
34․Mr Jure Domazet further explained that it was also not the usual practice within the Doma Group for the plaintiff, through the Finance Trust, to distribute funds to discretionary trusts as the final intended recipient (as a further distribution may then be necessary). The final recipient of the funds would usually be an individual or corporate beneficiary, or an individual bloodline trust.
35․The affidavits from the internal finance team and Ms Williams as the external adviser all explain how the wrong company name came to be inserted in the course of the preparation of the documents which ultimately became the Resolution that was executed. I have summarised how the mistake occurred at the commencement of these reasons. It is unnecessary to set the contents of those affidavits out in any detail, other than to say that the evidence was consistent with the final spreadsheet approved by Mr Jure Domazet following the financial and tax planning meeting. The spreadsheet clearly shows that the $10 million ordinary income distribution was meant to be directed to Little National Sydney and not LN Sydney.
36․The financial reports of Little National Sydney, LN Sydney and the Finance Trust, certified by Mr Jure Domazet and the external accountant were also in evidence. Those documents confirm that the distribution pursuant to the Resolution was received by Little National Sydney and not LN Sydney.
37․Drawing together the subjective intentions (the states of mind) of the directors, the advice given by the internal accountants, the explanation given by the external accountant and adviser and the contemporaneous business records setting out what was to occur and what did occur, there is clear and convincing proof that the intention of Doma ACT, acting through its directors, was to direct income in the sum of $10 million to Little National Sydney.
Do the terms of the Resolution as expressed give effect to the makers’ intention?
38․Having regard to the express words of the Resolution, I further accept that the intention of the makers is not reflected in the Resolution, in a clearly identifiable way.
Conclusion and Orders
39․In GE v FCT, Gordon J explained how mistake may commonly be rectified at [117]:
The “usual type” of mistake capable of rectification involves incorrectly recording the intention of the maker of a document. Such a mistake may be rectified by inserting words or deleting words, or substituting different words because the words that are there have the wrong meaning: see Allnutt v Wilding [2007] EWCA Civ 412 at [12]; Butlin’s Settlement Trusts at 260.
40․In all the circumstances, I am satisfied that the words “LN Sydney” in the second and third bullet points of the Resolution is a mistake that the Court can and should rectify in the manner sought by the plaintiff, namely by substituting for “LN Sydney” the different words “Little National Sydney Pty Limited”.
41․While equitable relief is discretionary, having established the basis for rectification and that the Resolution is capable of rectification, there is no reason here why the remedy should be withheld.
42․I note that there will be no order for costs, with the intent that the plaintiff pay its own costs of obtaining rectification through this proceeding.
43․For the above reasons, the Court makes the following order:
(1)The resolution made on 30 June 2022 by the directors of Doma ACT Pty Limited ACN 116 939 916 as trustee of the Doma Finance Trust is rectified so that, in the second and third bullet points in paragraph 3 under the heading “Allocation of Trust Income for the Year”, it is taken to always have read as follows:
(a)Delete the words “LN Sydney” where they appear; and
(b)Insert in their place “Little National Sydney Pty Limited”.
| I certify that the preceding forty-three [43] numbered paragraphs are a true copy of the Reasons Judgment of her Honour Justice McWilliam Associate: Date: |
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