Domazet v Jure Investments Pty Limited
[2016] ACTSC 33
•7 March 2016
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Domazet v Jure Investments Pty Limited |
Citation: | [2016] ACTSC 33 |
Hearing Date: | 9 November 2015 |
DecisionDate: | 7 March 2016 |
Before: | Mossop AsJ |
Decision: | See [94]–[95] |
Category: | Principal Judgment |
Catchwords: | EQUITY – rectification – trusts – solicitor’s error as to operation of rule against perpetuities – documents drafted on the basis of incorrect rule – whether rectification available to apply correct rule – whether intention as to terms of documents as drafted or to achieve a particular effect – rectification granted |
Legislation Cited: | Australian Capital Territory (Self-Government) Act 1988 (Cth), s 34. Legislation Act 2001 (ACT), s 151(3). Perpetuities and Accumulations Act 1985 (ACT), ss 3, 8(1), 9. Property Law Act 1974 (Qld), s 209. |
Cases Cited: | Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 Baird vBCE Holdings Pty Ltd (1996) 40 NSWLR 374 Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 Byrnes v Kendle (2011) 243 CLR 253 Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 GE Capital Finance Australasia Pty Ltd v Federal Commissioner of Taxation (2011) 219 FCR 420 Oates Properties Pty Ltd v Commissioner of State Revenue (2003) 53 ATR 308 Nemesis Australia Pty Ltd v Commissioner of Taxation (2005) 150 FCR 152 Re Butlin’s Settlement Trusts [1976] Ch 251 Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226 |
Texts Cited: | Spry, Ian, The Principles of Equitable Remedies (Thomson Reuters, 9th ed, 2014) Halsbury’s Laws of England (Butterworths, 3rd ed, 1960) vol 34 Osborn’s Concise Law Dictionary (7th ed, 1983) |
Parties: | Proceedings 102 of 2015: Jure Domazet (First Plaintiff) Ivan Domazet (Second Plaintiff) Jure Investments Pty Limited (First Defendant) Doma ACT Pty Ltd (Second Defendant) Helen Domazet (Third Defendant) Betty Domazet (Fourth Defendant) Mary Domazet (Fifth Defendant) Susan Domazet (Sixth Defendant) Commissioner of Taxation (Seventh Defendant) Proceedings 103 of 2015: Jure Domazet (Plaintiff) Jure Investments Pty Limited (First Defendant) Ivan Domazet (Second Defendant) Helen Domazet (Third Defendant) Betty Domazet (Fourth Defendant) Mary Domazet (Fifth Defendant) Susan Domazet (Sixth Defendant) Doma ACT Pty Ltd (Seventh Defendant) Commissioner of Taxation (Eighth Defendant) |
Representation: | Counsel Mr J Hmelnitsky SC and Mr M O’Meara (Plaintiffs) Mr L Livingston (Seventh Defendant) |
| Solicitors Balazs Lazanas Welch (Plaintiffs) Australian Government Solicitor (Seventh Defendant) | |
File Numbers: | SC 102 of 2015 SC 103 of 2015 |
MOSSOP AsJ:
Introduction
Mr Jure Domazet and Mr Ivan Domazet (SC102 of 2015) and Jure Domazet (SC103 of 2015) have brought proceedings concerning the Domazet Family Trust (Family Trust), a trust created by trust deed dated 1 April 1980 (Family Trust Deed), and the Doma Finance Trust (Finance Trust), a trust created by a deed of settlement made on 1 November 2005 (Finance Trust Deed).
Because these proceedings involve a number of different members of the Domazet family I will refer, in these reasons, to Jure Domazet as Jure, Ivan Domazet as Ivan and other members of the family by their first name. In doing so I do not intend any disrespect.
The Doma Group is an ACT based family owned and controlled group of entities founded by Ivan which carries on property related business activities (such as property investment, property development and ownership, and operation of hotels and serviced apartments) principally, but not exclusively, in the ACT. Jure Investments Pty Limited (Investments), the trustee of the Family Trust, and Doma ACT Pty Limited (Doma ACT), the trustee of the Finance Trust, are both members of the Doma Group.
The orders sought in each application are:
(a)In proceedings SC 102 of 2015, Jure and Ivan seek orders rectifying certain instruments they made as directors of Doma ACT (as trustee of the Finance Trust), on 17 December 2009, determining the date on which the Finance Trust would vest and consequential declarations as to the vesting date of the Finance Trust;
(b)In proceedings SC 103 of 2015, Jure seeks a declaration that, on the proper construction of the Family Trust Deed, he together with his three sisters – Betty Domazet (Betty), Mary Domazet (Mary) and Susan Domazet (Susan) – are within the definition of “primary beneficiaries” in cl 1(a) of the Family Trust Deed.
The defendants in proceedings SC 102 of 2015 are Investments, Doma ACT, Helen, Betty, Mary, and Susan Domazet, and the Commissioner of Taxation. Each of these defendants except for the Commissioner was represented by the solicitors for the plaintiffs. The Commissioner neither consented to nor opposed the orders for rectification, but made submissions in relation to the form of consequential declarations and in relation to costs.
In proceedings SC 103 of 2015, the defendants were the same as in proceedings SC 102, except that Ivan was a defendant rather than a plaintiff. In these proceedings the Commissioner submitted to the order sought, but did not submit in relation to costs.
I will deal first with the claims in proceedings SC 102 of 2015 for rectification of documents and declarations.
The Finance Trust as a potential beneficiary of the Family Trust:
Clause 1(b)(iv) of the Family Trust Deed defines the term “General Beneficiaries” to include:
The trustee (in his capacity as such trustee) of any trust or settlement in which any Beneficiary has an interest whether absolute or contingent or by way of expectancy and whether liable to be defeated by the exercise of any power of appointment or revocation or to be diminished by the increase of the class to which that Beneficiary belongs which the Trustee may at any time and from time to time nominate in writing as a General Beneficiary and whether or not such trust or settlement is in existence at the date of this Deed but provided that the beneficial interest in property provided by such trust or settlement shall vest within the perpetuity period applicable to the trusts of this Deed.
(Emphasis added.)
A General Beneficiary may therefore include a trustee of a trust of which a Beneficiary has an interest, so long as the trustee of the Family Trust nominates it as a General Beneficiary, and only if it meets the proviso set out in the italicised words quoted above.
The beneficiaries of the Finance Trust include Ivan, his wife Helen Domazet (Helen) and their children – Jure, Betty, Mary and Susan: Finance Trust Deed, cll 3.1(a) and (b). Ivan and Helen and “the Children of Ivan Domazet and Helen Domazet” are within the definition of “Primary Beneficiaries” in cl 3 of the Family Trust Deed.
Therefore, Doma ACT, as trustee of the Finance Trust, will come within the definition of “General Beneficiaries” in cl 1(b)(iv) of the Family Trust Deed if it is nominated in writing and the Finance Trust satisfies the proviso appearing in the italicised portion of cl 1(b)(iv) above, that is, if it vests within the perpetuity period applicable to the Family Trust.
What perpetuity period applied to the Family Trust?
Clause 1(i) of the Family Trust Deed provides as follows:
“the perpetuity period” means that period beginning upon the date of this Deed and ending upon a date determined in accordance with this sub-clause being
(i) where the applicable law provides by Statute for the specification of a perpetuity period in years being a number of years not exceeding eighty (or some other maximum number)
(A) eighty years (or such other maximum number of years) from the date hereof, or
(B) such lesser number of years (if any) from the date hereof as may be hereinafter specified.
(ii) where the applicable law provides for a perpetuity period under the rule known in English law as “the rule against perpetuities”:
(A) the expiration of twenty one years from the date of the death of the last to die of such of them the issue [sic] of the Late King George the Sixth as are alive at the date of the execution of this Deed.
(B) such other date (if any) being a date which may validly be specified hereinafter.
For the reasons I explain below, the second of these two options was the applicable one.
Clause 1(j) of the Family Trust Deed provides, in effect, that the applicable law is the law of the Australian Capital Territory.
At the date of the Family Trust Deed (1 April 1980) the law of the Australian Capital Territory included the “old rule” against perpetuities. That rule was described by Lord Millett, giving the advice of the Privy Council in Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 (Air Jamaica) at 1408, as follows:
The classic formulation of the Rule is stated in Gray on Perpetuities 4th Ed. (1942), p.191. Its effect is that no interest is valid unless it must vest, if it vest at all, within a period of a life in being at the date of the gift plus 21 years. The rule is applied remorselessly. A gift is defeated if by any possibility, however remote, it may vest outside the perpetuity period. It is not saved by the fact that, in the event, it vests inside the period.
(This formulation of the rule was quoted with approval by Tamberlin J in Nemesis Australia Pty Ltd v Commissioner of Taxation (2005) 150 FCR 152 at [25].)
The rule applicable in the Australian Capital Territory was changed in 1985. On 12 December 1985, the Governor General made the Perpetuities and Accumulations Ordinance 1985 (No 65 of 1985) (Perpetuities Ordinance). The Perpetuities Ordinance was notified in the Commonwealth of Australia Gazette on 19 December 1985. At self-government it became the Perpetuities and Accumulations Act 1985 (ACT) (Perpetuities Act): Australian Capital Territory (Self-Government) Act 1988 (Cth) s 34. I will refer to it as the Perpetuities Act even though for some of the relevant period it was, in fact, an ordinance.
Subject to certain irrelevant exceptions, the Perpetuities Act applied to settlements taking effect after its commencement date: s 3. Section 8(1) of the Act provided that the rule against perpetuities applicable to an interest created by a settlement was “80 years from the date the settlement took effect”. Section 9 of the Perpetuities Act created the “wait-and-see rule”, namely, that an interest was treated as not infringing the rule against perpetuities until such time as it became certain that it must vest, if at all, after the end of the perpetuity period.
The Explanatory Statement for the Perpetuities Act stated as follows:
The purpose of this Ordinance is to modify the common law rule against perpetuities, and the related rules against accumulations and perpetual trusts, in order to make them less arbitrary in their operation and more suited to present day circumstances.
On the grounds of public policy, the common law courts of the seventeenth century developed criteria for disallowing some restrictions in settlements of property, whereby individuals sought to tie up property for what were considered to be excessive periods.
The rule against perpetuities (or remoteness of vesting as it is also known) was that a disposition is invalid if it could possibly take effect later than 21 years after the death of a person alive when the gift was made. This rule applied not only to trusts as such but also to, for example, wills, leases and option agreements.
Legislation to reform the common law rules has been enacted in several other jurisdictions, including New Zealand and the United Kingdom (1964), Victoria (1968), Western Australia (1969), Queensland (1974) and New South Wales (1984). This Ordinance is mainly based on the N.S.W. Perpetuities Act 1984. …
However, the reforms made by the Perpetuities Act occurred after the date of the Family Trust Deed (1 April 1980). Accordingly, for the purposes of the application of cl 1(i) of the Family Trust Deed, the “perpetuity period” was that period specified in cl 1(i)(ii)(A) which is set out above, namely, the expiration of 21 years from the date of death of the last to die of the issue of King George VI as were alive at the date of the Family Trust Deed, no other date having been specified. The reference in the clause to the “issue” of King George VI is a reference to his children, grandchildren and all other lineal descendants: Osborn’s Concise Law Dictionary (7th ed, 1983); Halsbury’s Laws of England (Butterworths, 3rd ed, 1960) vol 34, 612 [1070].
The vesting of the Doma Finance Trust
The Finance Trust Deed was made on 1 November 2005. Clause 13.1 of the Finance Trust Deed provides as follows:
13.1 Termination Date
The Trust shall be wound-up and terminate on the first to occur of:
(ss) the date which the Trustee with the written consent of the Appointor determines [sic];
(tt) 80 years from the date of this deed.
The numbering is as it appears in the document. Notwithstanding the numbering, there were in fact only two alternative triggers for the termination of the trust.
For the purposes of paragraph (ss), Ivan is the Appointor of the Finance Trust: cl 7.1, Finance Trust Deed. There is no evidence that prior to 2009 any date had been determined under paragraph (ss).
What happened in December 2009?
The affidavit of Jure dated 20 April 2015 provided:
15. In or about 2009, I instructed Maxim Chartered Accountants, the accountants for the Doma Group, to seek the advice of Cleary Hoare Solicitors (Cleary Hoare) in relation to the taxation of capital gains made by Jure Investments as trustee of the Domazet Family Trust.
16. During the course of obtaining this advice, I was informed that there were concerns as to whether Doma ACT was properly nominated as a beneficiary of the Doma Family Trust.
17. On 8 December 2009, Cleary Hoare sent me a letter providing certain documents which were designed to ensure that Doma ACT, as trustee of the Doma Finance Trust, came within the definition of “General Beneficiaries” in clause 1(b)(iv) of the Domazet Family Trust (Cleary Hoare letter)...
(Emphasis as in original.)
The affidavit then described various documents and the affidavit continued:
18. I was advised that to achieve this result it was necessary to ensure that the Doma Finance Trust vested within the perpetuity period applicable to the Domazet Family Trust. This was sought to be achieved by the Record of Resolution seeking consent…, the Notice to the Appointer…, the Record of Resolution re termination… and the Nomination by Trustee ... The documents were to the following effect: …
The affidavit then set out a summary of the effect of the various documents.
The letter from Cleary Hoare Solicitors, a firm of solicitors based in Brisbane, dated 8 December 2009 which is referred to in Jure’s affidavit was as follows:
8 December 2009
Mr J Domazet
C/-Maxim Chartered Accountants
[address]
Dear Mr Domazet
DEED OF AGREEMENT BETWEEN DOMAZET FAMILY TRUST AND DOMA FINANCE TRUST
We refer to the above matter and enclose the following documents:
1. Deed of Agreement between the Doma Family Trust and the Doma Finance Trust;
2. Resolution to distribute trust capital representing the capital gain.
We also enclose the following documents:
3. Record of Resolution by the Director of Doma ACT Pty Ltd re seeking Appointer’s consent;
4. Notice to the Appointer of the Doma Finance Trust;
5. Resolution by the Director of Doma ACT Pty Ltd; and
6. Nomination by Trustee;
7. Notice of appointment of additional beneficiaries.
We note that the ATO Practice Statement PS LA 2005/1 (GA) outlines taxation of capital gains. The ATO has stated in this Practice Statement that it will accept a capital gain to be assessed in the hands of a beneficiary provided the beneficiary has a vested and indefeasible interest in the trust capital representing the capital gain by or within two months of the end of the income year. To adopt this approach (the capital beneficiary approach), the beneficiary must enter into an agreement in writing to use the capital beneficiary approach. The enclosed Deed of Agreement has been prepared to satisfy this requirement.
The capital beneficiary approach can only be used if the beneficiary has a vested and indefeasible interest in the trust capital representing the capital gain at the end of the income year or has been allocated the capital gain. The extent of the capital gain to which it can agree in accordance with the Practice Statement is the amount to which it is entitled (i.e. the amount of capital gain distributed to it by the trustee in the distribution minute). The resolution at paragraph 2 provides a vested and indefeasible interest in trust capital representing the capital gain to the Doma Finance Trust.
In order to make the appointment of capital as described in the previous paragraph, it is necessary that the Doma Finance Trust is a beneficiary of the Domazet Family Trust. The beneficiaries of the Family Trust include trusts in which any beneficiary of the Family Trust has an interest (including a discretionary interest) which is nominated in writing by the Trustee to be a General Beneficiary, provided that the beneficial interest in property of such trust vests within the perpetuity period of the Family Trust. The perpetuity period of the Family Trust ends on 1 April 1980 [sic]. Documents 3 to 6 bring forward the vesting date of the Doma Finance Trust to be within the perpetuity period for the Domazet Family Trust. Document 7 then nominates the Doma Finance Trust as a beneficiary of the Family Trust. Documents 3 to 7 should be executed prior to documents 1 to 2, unless the Doma Finance Trust has validly been made a beneficiary at a prior time.
(Emphasis added.)
The reference to 1 April 1980 is clearly an error. Having regard to the content of the documents provided with the letter, what was clearly intended was a reference to 1 April 2060, 80 years from the date of the Family Trust Deed.
Documents 3 to 6 referred to in the above passage and my findings as to when they were executed are as follows:
(a)Document 3: a Record of Resolution by the directors of Doma ACT (as trustee of the Finance Trust) to the effect that Doma ACT desired to terminate the Finance Trust on 31 March 2060 and that Doma ACT was empowered by cl 13 of the Finance Trust Deed, with the consent of the Appointor, to determine an earlier date upon which the Finance Trust shall terminate (first Record of Resolution).
The first Record of Resolution was signed by Jure and Ivan on 17 December 2009;
(b)Document 4: a “Notice to the Appointor” of the Finance Trust by which Doma ACT provided the Appointor of the Finance Trust with notice that:
(i)it was empowered by clause 13 of the Finance Trust Deed, with the consent of the Appointor, to determine an earlier date upon which the Finance Trust shall terminate;
(ii)it desired to terminate the Finance Trust on 31 March 2060; and
(iii)sought the Appointor’s consent to the proposed determination (Notice to Appointor).
The Notice to Appointor was signed by Jure on behalf of Doma ACT as trustee of the Finance Trust and Ivan’s consent as Appointor was indicated by his signature on the bottom of the document. That was done on 17 December 2009;
(c)Document 5: a further Record of Resolution by the directors of Doma ACT (as trustee of the Finance Trust) that:
(i)noted that Doma ACT desired to terminate the Finance Trust on 31 March 2060;
(ii)noted that Doma ACT was empowered by clause 13 of the Finance Trust Deed, with the consent of the Appointor, to determine an earlier date upon which the Finance Trust shall terminate; and
(iii)noted the consent of the Appointor had been sought and received
(iv)resolved to execute a Nomination by Trustee (second Record of Resolution).
The second Record of Resolution was signed by both Ivan and Jure and dated 17 December 2009;
(d)Document 6: a “Nomination by Trustee” by which Doma ACT, pursuant to clause 13 of the Finance Trust Deed, determined that the trust shall terminate on 31 March 2060 (Nomination by Trustee). The Nomination by Trustee was signed by Jure on behalf of Doma ACT and consented to by Ivan as Appointor. The terms of the document make it clear that Doma ACT was acting as Trustee of the Finance Trust. The document is undated but, having regard to the dates on the other documents I find that it was signed on 17 December 2009.
As a result of the execution of the above documents, on 17 December 2009 Investments (as trustee of the Family Trust) was put in a position where it could appoint the Finance Trust as a General Beneficiary pursuant to cl 1(b)(iv) of the Family Trust Deed.
Document 7 provided with the Cleary Hoare letter was a “Notice of Appointment of Additional Beneficiary”. The notice appointed the Finance Trust as a beneficiary of the Family Trust pursuant to cl 1(b)(iv) of the Family Trust Deed. It was signed by Jure on behalf of Investments on 17 December 2009.
The documents as executed ought to have had the effect of causing the Finance Trust to become a general beneficiary of the Family Trust.
The consequence of that would have been to permit the Family Trust to deal with capital gains in the manner contemplated by the ATO Practice Statement referred to in the Cleary Hoare letter. Document 1 referred to in the Cleary Hoare letter was an agreement designed to give effect to the capital beneficiary approach to the taxation of capital gains in relation to a net capital gain of $39,780,445 made by the Family Trust during the year ended 30 June 2008. Document 2 was a resolution of the directors of Investments as trustee of the Family Trust in relation to that net capital gain.
Having regard to the date of execution of the various documents, namely 17 December 2009 (and the correspondence to which I refer below in relation to costs), there was no contention in these proceedings that these documents would have been effective in relation to the financial year ending 30 June 2008. They are referred to here simply in order to understand the purpose and intended effect of the documents which are now sought to be rectified.
What went wrong?
The documents set out above did not have the effect of ensuring that the Finance Trust vested within the perpetuity period applicable to the Family Trust so as to enable the Finance Trust to come within the definition of “General Beneficiaries” in cl 1(b)(iv) of the Family Trust Deed.
That is because the solicitors who prepared the instruments executed on 17 December 2009 misapprehended the perpetuity period applicable to the Family Trust. The drafters of the first Record of Resolution, the Notice to Appointor, the second Record of Resolution and the Nomination by Trustee plainly considered that the perpetuity period for the Family Trust was 80 years from the date of the settlement (1 April 1980). This is why 31 March 2060 was chosen in those instruments as the date on which the Finance Trust was to terminate. It is a date one day before the expiry of the period of 80 years from 1 April 1980 (the 80 year period specified in the Perpetuities Act not including the day of the settlement itself: Legislation Act 2001 (ACT), s 151(3)).
It is clear that the drafters of the documents executed on 17 December 2009 were unaware that, as at the date of the Family Trust Deed, the “old law” of perpetuities continued to apply in the ACT and the reform of the law of perpetuities in the ACT by the Perpetuities Act did not occur until 1985. The position in Queensland, where the solicitors were based, was that the old rule had been abandoned in 1974: Property Law Act 1974 (Qld) s 209. Consequently, they evidently mistook cl 1(i)(i)(A) of the Family Trust Deed as supplying the applicable perpetuity period and not cl 1(i)(ii)(A) (see the clause which is set out at [12] above).
Once it is accepted that the perpetuity period applicable to the Family Trust was that in cl 1(i)(ii)(A) of the Family Trust Deed – namely, the expiration of 21 years from the date of death of the last to die of the issue of King George VI as were alive at the date of the Family Trust Deed – it follows that the instruments executed on 17 December 2009 were ineffective to ensure that the Finance Trust vested within the perpetuity period applicable to the Family Trust so that the Finance Trust came within the definition of “General Beneficiaries” in cl 1(b)(iv) of the Family Trust Deed. This is because it could not be said that the Finance Trust satisfied the proviso in cl 1(b)(iv) of the Family Trust Deed, namely, that it “shall vest” within the perpetuity period applicable to the Family Trust (see [8] above). To do so the “life in being plus 21 years” formula in the Family Trust Deed would need to produce a vesting date after the vesting date of the Finance Trust, that is after 31 March 2060. Simplifying matters, it would need to be certain that the life in being would continue until 31 March 2039 (21 years prior to 31 March 2060). This would not certainly be the case because it is possible, albeit unlikely, that there will be no issue of King George VI who were alive as at 1 April 1980 who remained alive on 31 March 2039, 21 years before 31 March 2060. As the Privy Council made clear in Air Jamaica, the “old law” of perpetuities was applied “remorselessly” so that if there was any possibility of a settlement vesting outside the perpetuity period it was void. There is undoubtedly such a possibility even if it is a remote one. Similarly, for the purposes of the definition of “General Beneficiaries” in cl 1(b)(iv) of the Family Trust deed, it could not be said that the Finance Trust “shall vest within the perpetuity period applicable to the trusts of this Deed”.
The rectification sought
The plaintiffs seek rectification of the first Record of Resolution, the Notice to Appointer, the second Record of Resolution and the Nomination by Trustee so that each refers to the termination of the Finance Trust “on or no later than the Vesting Day” of the Family Trust. This would then allow the appointment of the Finance Trust as a beneficiary of the Family Trust to be effective.
The remedy of rectification
The remedy of rectification is available in relation to unilateral instruments as well as in relation to instruments between two or more parties: Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1905) 41 NSWLR 329 at 345 (Carlenka); Re Butlin’s Settlement Trusts [1976] Ch 251 at 260-262; GE Capital Finance Australasia Pty Ltd v Federal Commissioner of Taxation (2011) 219 FCR 420 at [105].
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. This is not such a case. In this case there can be no doubt that, in one sense, Ivan or Jure or both intended to execute documents containing the words that they did. If rectification is available in this case, it must be because of a misunderstanding as to the effect of the documents executed.
Dr Spry in “The Principles of Equitable Remedies” (9th ed, 2014) says (at 635):
A more difficult case arises where the parties are aware of the precise terms of the relevant part of the document but misapprehended 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. So it has been said by Brightman J [In re Butlin’s Settlement Trusts [1976] Ch 251 at 260], “Furthermore, rectification is available not only in a case where particular words have been added, omitted or wrongly written as a 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.” The second position arises where the parties, whatever their previous intention may have been, have ceased to retain that intention as their governing intention and have formed instead an intention to be bound by the precise terms of the document in question, regardless of possible discrepancies between its provisions and prior or other intentions on their part. In this event rectification is not appropriate.
...
It should be borne in mind that different considerations apply where the relevant mistake does not arise through a lack of conformity between a document and the concurrent intention of the parties, but rather arises through an error underlying but not forming part of that intention itself. Where there is no lack of conformity between the document and the concurrent intention the basis for rectification does not exist. So an error of law or other error may have related only to the expected consequences of an agreement and not to what the parties have actually agreed. (Footnotes omitted)
The distinction drawn by Dr Spry is between cases where:
(a)the dominant intention remains so that if the written instrument departs from that intention it may be rectified;
(b)the previous intention has been abandoned and the parties have agreed to the terms of the document executed in which case rectification will not be available.
The final passage quoted above identifies the issue which is critical to the determination of the current case, namely the relationship between a mistake and the intention necessary to permit an order of rectification. The passage has been referred to with approval by Sheller JA in Carlenka (1995) 41 NSWLR 329 at 341, 344 and Young J in Baird vBCE Holdings Pty Ltd (1996) 40 NSWLR 374 at 384 (Baird).
In order to understand how to address the relationship between an advisor’s error, a clients intention and the availability of rectification it is necessary to examine the authorities. They fall into two categories, those where the advisor’s error was incorporated into the client’s intention in which cases relief was refused and those where the intention can be seen to have remained despite the error in implementing the intention in which cases relief was granted. Another way of categorising the cases, which is a different (but less legally accurate) way of explaining the same idea, is that between cases where the advice has led to the wrong transaction and those where the advice has led to wrong drafting of the document. Rectification is available in the latter but not the former situation.
Winks
In Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226 (Winks) a landowner had sold timber on his land to a company. Subsequently he sold the land to a third party and the contract for sale included an acknowledgement of the existence of the contract for the sale of timber and attached a copy of it, but did not make that contract binding upon the purchaser. The issue was whether or not the agreement could be rectified. The Full Court of the Supreme Court of Queensland concluded that there had in fact been a prior oral agreement that the purchaser would honour the agreement for the sale of timber: Kneipp J at 232, Thomas J at 237, Shepherdson J at 242. The Court therefore found that rectification was available notwithstanding that the mistake was as to the legal effect of the agreement, rather than as to the words used: 233-235, 236-237 243.
Carlenka
In Carlenka (1995) 41 NSWLR 329 a trust deed was intended to be amended to allow distribution of trust income to a company. That was as a result of receiving accounting advice that there would be tax advantages to the trust and the beneficiaries if the trust had the power to make such a distribution. In drafting the amendments, the solicitors had been concerned to ensure that those amendments 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 of the trust and attracted ad valorem stamp duty. Notwithstanding this concern, the amendments drafted and made to the deed did in fact have the effect of entitling the company to a share in the distribution of capital, thereby attracting stamp duty. This drafting error occurred because the solicitor had misinterpreted the provisions of the trust deed. The case was therefore one in which the party executing the documents intended to execute documents containing the words that they did. However, due to a mistake on the part of the solicitors who drafted the documents, the words of the documents did not have the legal effect which was intended. The written instrument that was sought to be rectified was not executed as a result of a mistaken belief as to what it contained, but instead a mistake as to its effect. The Court of Appeal unanimously upheld a decision of Brownie J granting rectification.
At 331 Mahoney AP 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 that transaction.
Mahoney AP (at 332) went on to define “intention” for this purpose 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 execution of the document”. His Honour found that the intention of the director with control of the corporate trustee was “clear and… formulated precisely”. The intention of the trustee was that the deed be amended to allow a named company to be a recipient of income of the trust and that the company should not require any interest in the capital of the trust. His Honour’s conclusion, which places an emphasis on the significance of those facts about the trustee’s intention, was as follows (at 332-333):
Mr Mason QC pressed the submission that the intention of the company was to execute the deed as it was drafted and that that intention was achieved. But that, in my opinion, does not give proper effect to the principle upon which rectification is based and of the “intention” which is the foundation of it. That which subjectively the parties sought to achieve and thought they achieved by the execution of the document was that to which I have referred. The manner in which or the formula of words by which those two things were to be achieved were not things to which, in the relevant subjective sense, the company’s attention was directed. Upon that basis the deed was apt for rectification.
Sheller JA said (at 340):
The plaintiff must displace the hypothesis, arising from the execution of the written instrument, that it expressed the true intention. Proof sufficient to displace this hypothesis may be easy or difficult or impossible. Such proof may be more difficult, in some circumstances impossible, if the words of the instrument are purposely used or indicate that the parties or party no longer intended to give effect to the whole of the antecedent intention. Careless copying is one thing. Omission of some words of limitation necessary to achieve the intention another. Mistake as to the legal effect of the words used another. The proved intention of the parties or party may be equivocal or too general or not sufficiently exact or precise to found relief. But if the claimant convinces that Court that the instrument does not conform with the intention of the parties or of the party which made it and the intention is clear and precise and can be achieved by the language of an order for rectification, relief should be available.
He referred to the statements of Hodgson J in Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 at 406 (Bush) that:
... one needs to be able to say that, although in a sense the parties intended to be bound by a document which included certain words, nevertheless their intention to achieve a legal effect which was not the true legal effect of those words was somehow predominant over that other intention, and clearly predominant.
Sheller JA noted that this statement accorded with Dr Spry’s statement relating to “governing intention”.
His Honour’s conclusion placed very significant reliance upon the unchallenged evidence of the controlling mind of the corporate trustee that “his sole intention was that, for the purpose of legitimately reducing the income tax payable on distributions from the trust, a discretionary company income beneficiary be introduced and that any such company would otherwise have no role or interest in the trust.” In the light of this evidence, his Honour found no basis for interfering with the trial judge’s finding that the intention was as expressed and continued at all times up to the execution of the deed which made the amendment.
McLelland AJA said (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).
His Honour was satisfied that there was such “clear and convincing proof”.
Baird
In Baird (1996) 40 NSWLR 374 advice was received from an accountant as to how to structure a transaction by which one company would become a subsidiary of another without incurring capital gains tax liability on the part of three of the four shareholders. Shares were transferred in accordance with the accountant’s advice. That advice turned out to be incorrect. Young J found that rectification was not available because there was no mistake in putting the parties’ agreement into effect. Rather, the misapprehension was as to the tax implications of the transaction, his Honour saying (at 385):
Indeed, in the present case, no mistake was made in putting the parties’ agreement into effect. The parties were under a misapprehension as to the tax implications of the transaction, but this was in the words of McLelland AJA in [Carlenka] an error with respect to [“]legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind” and is not the type of error which the Court will recognise as a mistake which justifies rectification.
...
In the present case, the parties cannot say that they did not intend the share transfer to take effect in the way it did. Unlike the trust deed in Carlenka, which failed to express the true intention and agreement of the parties, the execution of share transfers and alteration of the share register was a true reflection of the parties’ agreement. What the parties appear to be seeking is, in effect, a rectification of the transaction, and not the documents which embody it. This cannot be granted because “Courts of Equity do not rectify contracts; they may and do rectify instruments purporting to have been made in pursuance of the terms of contracts”: Mackenzie v Coulson (1869) LR 8 Eq 368 at 375 per James V-C.
This case is an illustration of where the erroneous advice occurred sufficiently upstream that it determined what the intention was and hence meant that rectification was not available. It is an illustration of the incapacity of the remedy to rectify transactions rather than documents.
Club Cape Schanck
In Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 (Club Cape Schanck) there was a dispute between the parties over payment of sewerage charges pursuant to an agreement between them. Proceedings were commenced by one alleging a breach of the agreement and seeking repayment of monies paid under it. The parties entered into an agreement to settle proceedings which included a clause requiring the parties to negotiate and attempt to agree on new sewerage treatment charges and, in default of agreement, permitting either party to make an application to the Administrative Appeals Tribunal of Victoria with the intention that the Tribunal determine those charges. The parties agreed that the reference to the Tribunal should also be taken to be reference to its successor, the Victorian Civil and Administrative Tribunal (VCAT). In fact, the VCAT had no jurisdiction that could be invoked in the manner contemplated by the clause.
The error was an error of one of the lawyers who proposed including such a provision. Rectification was refused because it was not established that the parties had an alternative intention if, as was the case, the VCAT had no jurisdiction.
Tadgell JA distinguished the matter from Carlenka because the mistake did not result in a legal and factual operation of the words in the clause which was fundamentally inconsistent with what the parties agreed it should achieve. Rather the clause was precisely what the parties had agreed upon, but no words could have been used to achieve what the parties hoped to achieve. It was significant for his Honour that no words or expressions or other text inserted into or deleted from cl 2 would give effect to the parties’ common intention. His Honour remarked (at [14]) that it was not open to use the remedy of rectification to achieve what the Court or one of the parties “considers to be the next best thing”.
The judgment of Phillips JA (at [39]) emphasised the centrality of the finding of fact that there was a disconformity between the intention of the party or parties and the effect of the document:
Despite the differences in result that appear from case to case (for example, when Rose v Pim is contrasted with Carlenka), I venture to suggest that the principle upon which rectification depends always remains the same; it depends in every case upon a want of correspondence between the form of the document (that is, in the words actually used) and the common intention of the parties at the time when the document is executed. Where the disconformity is the product of a common mistake, that mistake may be as to what words have been employed in the document or the meaning or effect of such words as appear. But whatever the common mistake, the lack of correspondence must be between the form of the document and the common intention, if rectification is to be available. In Rose v Pim the parties were mistaken as to the effect of their words, but there was no disconformity between the words employed and what was held to be their common intention - and so rectification was not available. In Carlenka, there was a lack of correspondence between form and intention and so rectification was available. Of course, whatever the nature or source of the underlying mistake of the parties, the common intention of the parties at the time of the execution of the document remains a matter of fact, which accounts, I believe, for such variations as occur in result. The result in any given case will depend upon whether in the particular circumstances of that case there is (as a matter of fact) the requisite disconformity between the document as executed and the common intention of the parties. It is not enough that the parties have made a mistake about their document (whether the mistake be about the words used, their meaning or their effect); that mistake may serve to explain such disconformity (if any) as is seen to exist, but it cannot be a substitute for it.
His Honour concluded that there was no disconformity between the written word and the common intention as found by the trial judge. Having regard to what the parties’ intention in fact was, there was no form of words that was capable of overcoming their mistake.
Chernov JA said that the agreement between the parties had been made on the wrong assumption that the tribunal had jurisdiction or power to do what the terms of settlement contemplated, but there was no mistake as to it embodying their common intention in the terms of settlement. He therefore distinguished the matter from Carlenka.
Club Cape Schanck is another example of how erroneous advice may become incorporated into the common intention of the parties and hence prevent rectification being granted.
Oates
Oates Properties Pty Ltd v Commissioner of State Revenue (2003) 53 ATR 308 (Oates) also involved the failure by a solicitor to draft a document sufficient to give effect to the intention of the solicitor’s instructions. The intention was to appoint a new trustee to a trust in a manner which, consistently with a ruling by the Commissioner of State Revenue, would not incur ad valorem duty. In order to do that, an amendment to the trust deed was needed to be made so as to ensure that trustees could not benefit under the deed and that amendment needed to be irrevocable. The clear evidence as to intention was set out in the judgment at [5]-[11]. The evidence disclosed the process by which the solicitor discovered the relevant revenue ruling and its requirements and then obtained instructions from the plaintiff on the basis that those requirements would be satisfied.
The solicitor who drafted the deed of appointment which included the amendments to the trust deed believed that it would satisfy the Commissioner and hence not attract other than nominal duty. However, the amendments drafted failed to give effect to the intention of the solicitor’s instructions because they failed to include a prohibition on taking a benefit under the trust deed that was irrevocable. The question for Gzell J was whether or not rectification could be granted. His Honour said: “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.” His Honour reviewed the authorities both before and after Carlenka and concluded that there was a disconformity between the intention established by the evidence and the effect of the deed of appointment. Further, he found that the plaintiffs had displaced the hypothesis arising from their execution of the deed of appointment that it expressed their true intention.
Oates is another example of a case where the evidence demonstrated that the intention was to achieve a particular effect through the execution of a particular document and the disconformity between that intention and the effect of the document was sufficient to warrant rectification.
The availability of rectification in the present case
The cases in which rectification has been granted (Wink, Carlenka, Oates) have been cases in which there has been good evidence as to the intention of the parties and that intention remained at the point of execution of the document so as to create the disconformity that could be remedied by rectification. The cases where rectification has been refused (Baird, Club Cape Schanck) are cases in which the intention was a more remote one and where the error infected the intention so that by the time of execution of the instrument it was not possible to displace the presumption that the terms of the instrument reflected the parties’ intention at the time.
The evidence in the present case is not very clear as to the background to the advice from Cleary Hoare. It is certainly not as clear as the evidence that was available in Carlenka and Oates which descended to the detail of the instructions given by the plaintiff to the solicitors. In the light of the authorities, this case could be characterised in one of two ways:
(a)It could be characterised as a case in which the only relevant intention was an intention to follow the advice of the solicitors. That advice was to execute documents which would have the effect set out in the letter of 8 December 2009, including the bringing forward of the vesting period of the Finance Trust so that it ended prior to 1 April 2060. The documents executed were in fact consistent with that advice. The problem was not a disconformity between the intention formed by Ivan and Jure and the documents they executed, but instead a disconformity between the documents and what the law required in order to achieve the effective nomination of the Finance Trust as a beneficiary of the Family Trust.
(b)Alternatively, it could be characterised as a case where at all times the intention was to achieve the appointment of the Finance Trust as a beneficiary of the Family Trust (as a step along the way to permitting capital gain is to be treated in the manner contemplated by the letter of 8 December 2009) and the error, although involving an error of law, was a drafting error in giving effect to that intention.
The affidavit evidence of Jure which I have referred to above is not particularly useful. So far as it contains what appears to be actual recollection, it is in vague terms: see [23]-[24] set out above. Otherwise it appears simply to recite the contents of the various documents.
Because of the limited evidence of Jure as to his subjective intention, regard must be had to the documentary material. So far as 8 December 2009 letter was concerned, if it was not for the statement as to when the perpetuity period for the Family Trust ended (which in fact incorporated an obvious error) then there would be nothing in the letter that would detract from the proposition that the governing intention at the point of execution of the documents was to take the steps necessary to permit the Finance Trust to be nominated as a beneficiary of the Family Trust. The statement in the letter “The perpetuity period of the Family Trust ends on 1 April 1980 [which should be 2060]” is what has the potential to incorporate the solicitors’ mistake into Jure and Ivan’s intention.
Each of the documents provided with the Cleary Hoare letter is consistent with the intention of the transaction being to permit the valid appointment of the Finance Trust as a beneficiary of the Family Trust as a step along the way to permitting a transaction that complied with the ATO Practice Statement referred to in the letter.
I am ultimately persuaded that this is a case where rectification can be granted because:
(a)There is no escaping the fact that the purpose of the transaction was to enable the Finance Trust to be appointed as a beneficiary of the Family Trust;
(b)The error made was one in the drafting of the document for the purposes of giving effect to that intention;
(c)The error was a specific error made by the solicitors drafting the agreement, which could be rectified by an amendment to the wording of the documents consistent with the identified intention (cf Club Cape Schanck);
(d)The error was one which changed the substance of the transaction, but was analogous to a technical drafting error rather than one involving a new transaction or different intention;
(e)The case is clearly distinguishable from Baird where the whole transaction was shaped by the error and could not be undone. It is also distinguishable from Club Cape Schanck, because here there is evidence of the intention and that intention may be given effect to not by adopting a “next best thing”, but by substituting words which it is clear that the parties would have included but for the error.
In the passage quoted above, Dr Spry talks of the governing intention. In Hodgson J’s words in Bush the intention must be the predominant intention. In the present case I have no doubt that the predominant intention was to bring forward the vesting date of the Finance Trust so as to enable it to be appointed as a beneficiary of the Family Trust. While the date upon which the Finance Trust was to terminate is fundamental to the formal terms of the transaction, the date itself is of minimal significance and I am satisfied it was not of any significance to Jure or Ivan except to the extent to which it achieved the intended effect, namely, the capacity to nominate the Finance Trust as a beneficiary. It was a matter which was a “complex and legalistic matter” (cf Club Cape Schanck at [37]) and not a matter which would likely concern Jure or Ivan except to the extent that it achieved the desired effect. I am therefore satisfied that, notwithstanding the erroneous references in the documents to 31 March 2060, the predominant or governing intention of Jure and Ivan when executing the documents was to vary the vesting date of the Finance Trust so as to enable it to be effectively appointed as a beneficiary of the Family Trust.
The case is distinguishable from Carlenka and Oates to the extent that the change involves one of substance in order to give effect to the intention of the transaction rather than involving substituting or adding words containing additional qualifications. However, given that it is disconformity between intention and document which drives the remedy of rectification, the substantive nature of the amendment to the document is not fatal.
Accordingly, it is appropriate for the Court to make an order rectifying the first Record of Resolution, the Notice to Appointor, the second Record of Resolution and the Nomination by Trustee so that they conform and give effect to the intention of Doma ACT.
Clause 1(f) of the Family Trust Deed relevantly provides as follows:
“the Vesting Day” means the first to occur of the following date, namely –
…
(ii) the date of expiration of the perpetuity period hereinafter defined.
Effect can be given to the intention of the documents by substituting in each of the first Record of Resolution, the Notice to Appointor, the second Record of Resolution and the Nomination by Trustee the date 31 March 2060 with the words “on or no later than the Vesting Day of the Domazet Family Trust as defined in clause 1(f) of the Domazet Family Trust Deed”. This rectification will mean that the vesting of the Finance Trust will be aligned with the expiration of the perpetuity period of the Family Trust and the intention of Doma ACT in making the instruments of 17 December 2009 will be achieved.
Declarations consequential upon the rectification of the documents have been sought to the effect that:
(a)the vesting date of the Finance Trust is on or no later than the vesting date of the Family Trust;
(b)the Finance Trust is a trust that “shall vest within the perpetuity period applicable to the trusts of this Deed” within the meaning of cl 1(b)(iv) of the Family Trust Deed; and
(c)Doma ACT as trustee of the Finance Trust is a “General Beneficiary” within the meaning of cl 1(b) of the Family Trust Deed.
Having rectified the documents, the consequences identified in these orders follow. The issue between the plaintiffs and the Commissioner was whether or not the form of those declarations should be amended so as to expressly identify that they only took effect from the date of the rectified documents, namely 17 December 2009. That issue was productive of a dispute over costs which I address below. In each case the declarations sought are indicated as being consequential upon the previous orders of the Court. Thus, they necessarily incorporate the operation of the orders rectifying the documents dated or signed on 17 December 2009. In those circumstances it is clear that they could not affect the operation of either deed at an earlier date. Nobody reading the consequential declarations could be confused about that because of the express reference to the previous orders. However, the final declaration that is sought is:
It be declared that by operation of orders 1-6 above, Doma ACT as trustee of the Doma Finance Trust is a “General Beneficiary” within the meaning of clause 1(b) of the Domazet Family Trust Deed.
In my view, a declaration in that form is not appropriate because although it refers to previous orders of the Court, it fails to make reference to the actual instrument by which the Finance Trust was appointed as a “General Beneficiary” of the Family Trust. I will amend the form of this declaration so as to make specific reference to that instrument and the date from which it took effect. This has the effect of both putting the declaration in an appropriate form and addressing the issue raised by the Commissioner.
Claim for declarations in SC 103 of 2015
In proceedings SC 103 of 2015 Jure seeks a declaration to the effect that he and his three sisters – Betty, Mary and Susan – are within the definition “Primary Beneficiaries” in cl 1(a) of the Family Trust Deed. That clause provides as follows:
The “Primary Beneficiary” and the “Primary Beneficiaries” mean the person or persons named and described or defined as such herein.
Clause 3 of the Family Trust Deed identifies as the “Primary Beneficiaries” Ivan Domazet, Helen Domazet and “the children of Ivan Domazet and Helen Domazet”.
As at the date of the Family Trust Deed (1 April 1980), each of the four children of Ivan and Helen Domazet had been born: Betty in 1968, Mary in 1970, Jure in 1973 and Susan in 1979. The fact that those children had been borne as at the date of the deed is a surrounding circumstance which legitimately informs the interpretation of the Family Trust Deed.
Adopting the same rules for construction of a trust deed as apply to the construction of contracts (cf Byrnes v Kendle (2011) 243 CLR 253 at [102]) and attributing to its terms the meaning which a reasonable businessperson would have understood those terms to mean having regard to the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the document (cf Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35]), the interpretation of the Family Trust Deed is relatively straightforward. That is to interpret the words “the children of Ivan Domazet and Helen Domazet” in cl 3 of the Family Trust Deed as describing or defining Jure, Betty, Mary and Susan so that they fall within the definition of “Primary Beneficiaries” in cl 1(a) of the Family Trust Deed. This is so notwithstanding that the names of Jure, Betty, Mary and Susan do not, in terms, appear in the Family Trust Deed. It is likely that the words “the children of Ivan Domazet and Helen Domazet” were used in cl 3 of the Family Trust Deed to accommodate the possibility that Ivan and Helen would have children after 1 April 1980 who could not at the date of the Family Trust Deed be specifically named. Plainly enough, the other parties, each of whom has entered a submitting appearance did not advance any alternative interpretation, nor is one apparent.
The reason that the declaration was sought was identified in the affidavit of Jure Domazet of 20 April 2015 as follows:
10.I am advised that an issue of construction of the Domazet Family Trust Deed has arisen. The issue, as I understand it, is whether Betty, Mary, Susan and I are within the definition of “Primary Beneficiary” in clause 1(a) of the Domazet Family Trust Deed. This depends, as I understand it, on whether we are “persons named and described or defined as such herein” within the meaning of clause 1(a) of the Domazet Family Trust Deed. That in turn depends on whether our inclusion within the phrase “the children of Ivan Domazet and Helen Domazet” in clause 3 of the Domazet Family Trust Deed is sufficient naming, or description to satisfy clause 1(a) of the Domazet Family Trust.
11. I have caused these proceedings to be commenced to respectfully seek the assistance of this Honourable Court in the resolution of the issue of construction referred to above...
I was told from the bar table that, at some unspecified time, the Commissioner had not accepted that each of the children fell within the definition of primary beneficiaries. There was no evidence as to the circumstances in which that assertion was made. There was no evidence to indicate that the Commissioner maintained that contention. There was no other evidence or explanation as to what the “issue of construction” that “has arisen” was.
In my view it is not appropriate to make the declarations sought. That is because there is no present dispute as to the operation of the Family Trust Deed and no apparent utility in making a declaration in the abstract. If I am to make a declaration of the obvious, with which everyone agrees, and which has no identifiable consequence, what is the point of making such a declaration? If, on the other hand, there is, in fact, some real controversy then the Court can quell that controversy when the relevant facts are disclosed and competing arguments advanced. However, no present controversy is disclosed about the interpretation of the deed. The assertion merely that there is an “issue of construction” is insufficient.
For these reasons, I decline to make the declaration sought in paragraph 1 of the Originating Application in proceedings SC 103 of 2015.
Costs
In relation to the costs of proceedings SC102 of 2015, the Commissioner sought costs either of the whole of the proceedings or alternatively from 21 May 2015. It relied upon a bundle of correspondence which became exhibit 1. It sought to characterise the conduct of the plaintiffs as being unreasonable in refusing to amend their application to include a statement that the orders for rectification only take effect from 17 December 2009.
The concern of the Commissioner was that, having regard to the terms of the orders sought, there might be some consequence for the existing AAT proceedings relating to the year ending 30 June 2008 or that the plaintiffs might contend there were such consequences. The Commissioner sought some reassurance that it was not the intention of the plaintiffs to rely upon the orders in these proceedings in the AAT proceedings. The position consistently adopted by the plaintiffs was that, in the circumstances, the orders could only take effect from 17 December 2009 because that was the date of instruments that were rectified. The correspondence from the plaintiffs’ solicitors did, however, contemplate that there might be some indirect consequences for the AAT proceedings, because the settlement discussions in relation to those proceedings have included discussion of later income years which would be affected by the orders. As a result, the plaintiffs declined to give the assurance sought by the Commissioner that they would not rely “in any way (directly or indirectly)” on the orders sought in these proceedings in the AAT proceedings relating to the year ended 30 June 2008.
Having regard to the nature of the relief being sought, it is hard to understand how any declarations could have any effect earlier than 17 December 2009. However, they were in general terms and the documents which were the subject of the orders for rectification were brought into existence with the intention of achieving taxation consequences applicable to the financial year ending 30 June 2008 (documents 1 and 2 in the Cleary Hoare letter).
In my view, it has not been demonstrated that the plaintiffs acted unreasonably. The correspondence from the Commissioner reflected an understandable caution as to the consequences of the orders sought. The correspondence from the plaintiffs’ solicitor reflected a reluctance to give the broad undertaking sought by the Commissioner. While it took considerable correspondence to reach it, the final position articulated in the correspondence, which precluded any direct consequences for the year ending 2008 but recognised some indirect relationship because of settlement negotiations which also related to subsequent years, gave each party a clear understanding of the other’s position and minimised the scope of matters in contention.
I have in fact inserted into the declarations that I will make a reference to the date from which Doma ACT as trustee of the Finance Trust became a “General Beneficiary” for the purposes of the Family Trust Deed. That was because there was no reference in the orders to the instrument of appointment which was dated 17 December 2009 and it appeared to me to be appropriate to tie the declaration to the instrument which effected the appointment. That, however, is a slightly narrower point than the point raised in correspondence by the Commissioner.
In my view, the appropriate order is that there be no order as to costs.
Orders
In proceedings SC 102 of 2015 the orders of the Court are:
1. The record of the resolution by the directors of Doma ACT Pty Limited ACN 116 939 916 (Doma ACT) as trustee of the Doma Finance Trust made on 17 December 2009 be rectified so that paragraph B reads as follows: “The Trustee desires to determine that the Trust shall terminate on or no later than the Vesting Day of the Domazet Family Trust as defined in cl 1(f) of the Domazet Family Trust Deed dated 1 April 1980 (Domazet Family Trust Deed)”.
2. The Notice to the Appointor of the Doma Finance Trust made on 17 December 2009 be rectified so that paragraph 2 reads as follows: “The Trustee desires to determine that the Trust shall terminate on or no later than the Vesting Day of the Domazet Family Trust as defined in cl 1(f) of the Domazet Family Trust Deed”.
3. The document entitled “Record of Resolution by the Sole Director of Doma ACT Pty Limited” made on 17 December 2009 be rectified so that paragraph B reads as follows: “The Trustee desires to determine that the Trust shall terminate on or no later than the Vesting Day of the Domazet Family Trust as defined in cl 1(f) of the Domazet Family Trust Deed”.
4. The document entitled “Nomination by Trustee” be rectified so that:
a. paragraph 4 reads as follows: “The Trustee wishes to nominate the Vesting Day of the Domazet Family Trust as defined in cl 1(f) of the Domazet Family Trust Deed as the date on which the Trust shall terminate”;
b. paragraph 5 reads as follows: “The Appointor has consented to the nomination of the Vesting Day of the Domazet Family Trust as defined in cl 1(f) of the Domazet Family Trust Deed as the date upon which the Trust shall terminate”; and
c. paragraph 6 reads as follows: “Pursuant to cl 13 of the Trust Deed, the Trustee determines that the Trust shall terminate on the Vesting Day of the Domazet Family Trust as defined in cl 1(f) of the Domazet Family Trust Deed”
5. It is declared that by operation of orders 1 - 4 above, the vesting date of the Doma Finance Trust is on or no later than the vesting date of the Domazet Family Trust.
6. It is declared that by operation of orders 1 - 5 above, the Doma Finance Trust is a trust that “shall vest within the perpetuity period applicable to the trusts of this Deed” within the meaning of cl 1(b)(iv) of the Domazet Family Trust Deed.
7. It is declared that by operation of orders 1 - 6 above and the Notice of Appointment of Additional Beneficiaries dated 17 December 2009, Doma ACT as trustee of the Doma Finance Trust is, from that date, a “General Beneficiary” within the meaning of cl 1(b)(iv) of the Domazet Family Trust Deed.
8. There is no order as to the costs of the proceedings.
In proceedings SC 103 of 2015 the orders of the Court are:
1. The proceedings are dismissed.
2. There is no order as to costs of the proceedings.
| I certify that the preceding 95 [ninety-five] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop. Associate: Date: |
11
4