Holloway v Commissioner of State Revenue

[2024] TASSC 45

[2024] TASSC 45

COURT:	SUPREME COURT OF TASMANIA
CITATION:	Holloway v Commissioner of State Revenue [2024] TASSC 45
PARTIES:	HOLLOWAY, Alexander Lance, and
CONN, Gabrielle Marie (as trustees of the Hollandia
Family	Trust)
v
COMMISSIONER OF STATE REVENUE
FILE NO:	3206/2023
DELIVERED ON:	14 August 2024
DELIVERED AT:	Hobart
HEARING DATE:	14 August 2024
JUDGMENT OF:	Blow CJ
CATCHWORDS:

Equity – General principles – Mistake – Equitable remedies – Rectification – Other particular cases – Rectification of trust deed to carry out real intention of settlor – Intention that transfer to trustees would qualify for intergenerational rural transfer stamp duty exemption.

Aust Dig Equity [1119]

Cases cited:
CherryTree Investments Limited v Landmain Limited [2013] Ch 305
Commissioner of Taxation v The Trustee for the Michael Hayes Family Trust [2019] FCAFC 226, 273 FCR
567 Craddoc Brothers v Hunt [1923] 2 Ch 136
Gartside v Inland Revenue Commissioners [1968] AC 553
Keadly Pty Ltd & ors [2015] SASC 124
Kennan v Spry [2008] HCA 56, 238 CLR 366

Trustee for the Michael Hayes Family Trust v Commissioner of Taxation [2019] FCA 426

REPRESENTATION:

Counsel:

Plaintiffs:	E Dordhain
Defendant:	M Rapley SC

Solicitors:

Plaintiffs:	Page Seager
Defendant:	State Litigator

Judgment Number:	[2024] TASSC 45
Number of paragraphs:	26

Serial No 45/2024 File No 3206/2023

ALEXANDER LANCE HOLLOWAY and GABRIELLE MARIE CONN (as trustees of the Hollandia Family Trust) v COMMISSIONER OF STATE REVENUE

REASONS FOR JUDGMENT	BLOW CJ
(Edited version of reasons delivered orally)	14 August 2024

1             This is an action for rectification of a trust deed by which a family trust was created. The plaintiffs are Alexander Lance Holloway and Gabrielle Marie Conn. They are the trustees of the Hollandia Family Trust. That trust was created by a trust deed dated 25 August 2022. The plaintiffs are seeking rectification of that deed. They executed another deed called a deed of rectification that is dated 13 February 2023. They are also seeking a declaration to the effect that that deed is of no effect.

2 The trust deed was drafted by a Launceston solicitor. She was also the settlor of the trust. The purpose of the trust was to allow the plaintiffs to purchase farming land from the executor of the estate of Mr Holloway's great uncle, and for that purpose to qualify for the intergenerational rural transfer exemption created by s 225 of the Duties Act 2001. As a result of an error and oversight in drafting the solicitor did not amend her firm's template discretionary trust deed so as to comply with the instructions of the plaintiffs.

3 The intergenerational rural transfer exemption is the subject of s 225 of the Duties Act. That section contains the following relevant provisions:

"(1)	Duty under this Act is not chargeable on a transfer of an interest in real property, whether for consideration or not, and which includes personal property used solely or principally in connection with the business of primary production, to the extent that the Commissioner is satisfied that the transfer of the interest –
… (c) is from –

(i)          a natural person to … a trustee of a trust in which all the beneficiaries are individually named and are relatives of the person at the time of the transfer and may not be varied other than by the addition of a relative individually named in any deed of variation …".

4 By virtue of s 225(3)(d), a nephew of a person is a relative of that person. By virtue of s 225(3)(f), a natural child of a nephew or a spouse of that child is also a relative of the person. By virtue of s 225(4)(b) a transfer from a deceased estate may be taken to be a transfer from the deceased person.

5             At all material times the two plaintiffs were living together as if they were man and wife. They were not married. They were in a significant relationship for the purposes of the Relationships Act 2003. The second plaintiff, Ms Conn, was therefore a spouse of the first plaintiff, Mr Holloway, for the purposes of the Duties Act. The word "spouse" and the words "significant relationship" are defined in s 3 of that Act.

6 If the trust deed had been worded appropriately the transfer from Mr Holloway's great uncle's deceased estate to him and Ms Conn would have been exempt from duty by virtue of s 225(1)(c)(i), but the Launceston solicitor overlooked the need to make changes to the standard form of discretionary trust deed that her firm used. The trust deed as executed did not limit the beneficiaries

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of the trust to the two plaintiffs. It did not restrict the powers to add beneficiaries so that only someone who was a relative of the transferor according to the meaning of "relative" in s 225(3) could be added, and so that such a beneficiary could only be added by a deed of variation naming that beneficiary. It provided for the removal of beneficiaries of the trust and variation of beneficiaries of the trust.

7             The Launceston solicitor did not realise that she had failed to comply with the plaintiffs' instructions. She signed the trust deed as settlor. She provided the document to the plaintiffs. They signed it believing that it had been drafted in accordance with their instructions. The purchase of the land from the great uncle's estate proceeded. It settled on 13 October 2022. The purchase price was $6.7 million. The transfer was sent off for stamping and registration in the expectation that it would be stamped as not liable for duty. To the surprise of the Launceston solicitor, she was advised on 18 November 2022 that an officer of the State Revenue Office had decided that the transaction was dutiable and that duty had been assessed in the sum of $269,685.

8             The solicitor and the plaintiffs signed the deed of rectification which I have referred to. The solicitor lodged an objection to the assessment of duty relying on that deed of rectification. The staff of the State Revenue Office took the view that the deed of rectification was not binding on the Commissioner for State Revenue and that the only way that the plaintiffs could obtain an exemption from the payment of duty was to obtain an order for the rectification of the trust deed. It was against that background that the plaintiffs instituted this proceeding seeking orders for the rectification of the trust deed to give effect to the true intention of the parties to the trust deed, namely the settlor and the plaintiffs.

9 On that basis the plaintiffs are seeking rectification, and they are also seeking a declaration that the deed of rectification is of no legal effect. They contend that the deed of rectification was entered into for the purpose of recording their true intention and that it was ineffective to do so because in various respects it still did not amend the trust deed so as to qualify for the s 225 duty exemption.

10           The Commissioner for State Revenue has been named as the only defendant in this action. The Commissioner filed a submitting appearance and has not participated in these proceedings as a contradictor. There has been no contradictor. I think it is clear from two cases that the Commissioner is an appropriate defendant. I was referred by counsel for the plaintiffs to a comment made by Steward J, with whom Griffiths and Derrington JJ agreed, in Commissioner of Taxation v The Trustee for the Michael Hayes Family Trust [2019] FCAFC 226, 273 FCR 567 at [53]. That was a case where rectification of a trust deed was sought in order to name the intended company as a beneficiary of a particular type. Steward J said at [53]:

"… in a case such as this, a taxpayer seeking orders for rectification should do so by
instituting separate proceedings against the Commissioner …".

11           It was the Commissioner of Taxation in that case, and nobody else, whose interests might have been adversely affected by the orders sought. Similarly in this case, it is only the Commissioner for State Revenue whose interests could be adversely affected by the orders sought.

12           I was also referred to a South Australian case: Keadly Pty Ltd & ors [2015] SASC 124. That was a case in which there were four plaintiffs and no defendants, and therefore there was no contradictor. It was a very similar case to this. It was a case where the plaintiffs sought rectification of a deed so as to qualify for a duty exemption. Bamford J granted rectification even though there was no named defendant in the proceedings. I am satisfied that it is appropriate that the Commissioner be a defendant.

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13           If the trust deed had taken effect as drafted there would have been a number of people who were beneficiaries under that deed and the class of beneficiaries would not have been closed. However a potential beneficiary under a discretionary trust does not have any sort of interest in the trust property. A potential beneficiary has the right to have the trust properly administered, and may have an expectancy or a hope of consideration by the trustees, but that is the extent of what such a potential beneficiary has: Gartside v Inland Revenue Commissioners [1968] AC 553 per Lord Wilberforce at 617-618; Kennan v Spry [2008] HCA 56, 238 CLR 366 at [74], [125], [160]-[161].

14 In those circumstances none of the potential beneficiaries under the trust deed as drafted needs to be joined as a defendant. It is also significant that r 305 of the Supreme Court Rules 2000 provides:

"If a party sues or is sued as trustee or personal representative –

(a) it is not necessary to join as a party any person having a beneficial interest
under the trust or in the estate".

15          The potential beneficiaries under the trust deed as drafted could not claim a beneficial interest in the trust so there was no need for any of them to be joined as a defendant.

16           Rectification is an equitable remedy that is available to reform documents where there has been a mistake that has caused the document not to operate as intended by the parties. It is available to reform documents but not to reform the bargain or arrangement between the parties. In this case there was no bargain. The plaintiffs contend that the trust deed did not express the intentions of the settlor or the plaintiffs. There are some cases about trust deeds and rectification in situations where the trust deeds did not reflect intentions of the parties that had been formed for the purpose of minimising or avoiding tax or duties. I have already referred to Keady Pty Ltd and ors. The other significant cases that have been brought to my attention are the decision of Logan J in Trustee for the Michael Hayes Family Trust v Commissioner of Taxation [2019] FCA 426 and a Full Court Appeal from that decision, Commissioner of Taxation v The Trustee for the Michael Hayes Family Trust (above). From those three cases the following propositions emerge:

• Rectification is available where there is a mistaken expression of the true intention of the maker or makers of a document. In the case of a trust deed the mistake must be on the part of the settlor.

• Rectification is generally not available where the mistake is only as to the legal effect of the document. However it is no bar to rectification that the rectification is sought to avoid stamp duty or that a fiscal benefit will result from the order.

• It is no bar to an order for rectification that the parties have previously entered into a deed of rectification in an attempt to record the true state of affairs.

• It is no bar to rectification that the mistake was due to negligence.

• What is required is convincing proof justifying the making of an order permitting the correction of a mistake in the relevant document.

17           It is also clear that an order for rectification takes effect retrospectively, so that the document is rectified with effect from the date of its making. The authorities as to that proposition include Craddoc Brothers v Hunt [1923] 2 Ch 136 at 151 and CherryTree Investments Limited v Landmain Limited [2013] Ch 305 at [336].

18           The factual evidence in this case is all one way. The relevant intention for the purposes was that of the Launceston solicitor as settlor. She has sworn an affidavit. Each of the plaintiffs has also sworn an affidavit. The solicitor has deposed to the following facts:

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• She was instructed by Mr Holloway to advise about the purchase of the land.

• She advised him during their initial discussions in June 2022 that the purchase might qualify for the intergenerational rural transfer exemption.

• At a subsequent meeting she advised the plaintiffs that they were both relatives as defined in s 225 of the Duties Act and that they would qualify for the exemption if they purchased the land either in their personal names or via a trust of which they were the sole beneficiaries.

• She gave considered advice to the plaintiffs regarding different options to structure the purchase, depending on whether they purchased the land in their sole names or in a qualifying trust, or part of the land in their names and part in the names of Ms Conn's parents. In the latter case the part purchased in the names of the parents would not have qualified for the exemption.

• The solicitor was ultimately instructed to create a new trust deed with the two plaintiffs as trustees and as the sole named beneficiaries, with the intention that the trust qualified for the exemption.

• Due to illness and a resulting backlog of work she prepared the trust deed in haste, and in doing so failed to consult her notes relating to her instructions. As a result she failed to amend the template deed that she was working from so as to comply with her instructions.

• She signed the trust deed and sent it to the plaintiffs for their signatures without realising her error.

• She did not realise her error until she was advised of the assessment of duty.

19   The plaintiffs have both deposed to the following:

• They were advised by the solicitor prior to the purchasing of the land and prior to the establishment of the trust that the purchase would qualify for the exemption if the land was purchased by a trust of which they were the sole beneficiaries.

• They instructed the solicitor that they intended the exemption to apply to the purchase and that she was to establish a trust that would qualify for that exemption.

• It was their intention that they would be the only beneficiaries of the trust and that the trust would qualify for the exemption.

• Detailed provisions of the deed were not of importance to them. The priority was ensuring compliance with the requirements for the availability of the exemption.

• They received the trust deed in the post for signature. They noticed that they were identified by name as the primary beneficiaries.

• They assumed that the solicitor had drawn the trust deed in order to qualify for the exemption.

• They signed the document believing that it did.

20           There is some hard evidence that supports the contentions of the plaintiffs. There is email correspondence from employees in the solicitor's office referring to the plaintiffs obtaining advice as to the exemption; the solicitor's file notes record her instructions from the plaintiffs and her advice to them about the exemption; and there is correspondence between Mr Holloway and the solicitor's firm after the signing of the trust deed but before the assessment of duty confirming that the intention was for the transfer to be exempt from duty.

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21           The evidence, as I have said, is all one way. It is unchallenged and uncontradicted. It constitutes convincing proof that the trust deed did not reflect the intention of the settlor, or the intention of the plaintiffs.

22 The statement of claim sets out the amendments that need to be made to the trust deed to reflect the true intention of the settlor, and for that matter the plaintiffs. There were two typographical errors in the list of amendments. They have been amended today. The effect of the amendments is simply to bring the trust deed into conformity with the intention of the settlor and the plaintiffs, namely that the plaintiffs were to be the sole beneficiaries and that the trust deed was to comply with the requirements of s 225 for the exemption to apply. With the amendments made, each of the beneficiaries will be named in the trust deed. They will be relatives of the transferor as defined, that is, the deceased great uncle, and the beneficiaries will not be capable of being varied other than by the addition of a relative, as defined in s 225, who is individually named by means of a deed of variation.

23 The position in relation to the deed of rectification is not so simple. It was defective in some respects. It set out a series of amendments to the original trust deed but in some respects it did not go far enough. It did not limit the beneficiaries, or potential beneficiaries, in such a way as to comply with s 225. It contained an amended definition of "beneficiaries" which was problematic. It had the potential for unnamed beneficiaries to be added by a deed of variation. It had the potential to extend the class of beneficiaries beyond the relatives, as defined in s 225, of the transferor, as defined. It allowed for the possibility that a beneficiary could become an excluded person and be permanently excluded.

24           The plaintiffs contend that because the deed of rectification, in fact, did not set out all the terms necessary to give effect to the true intention of the settlor, it is of no effect. I hesitated in accepting that proposition, but there is authority to support it in the decision of Logan J in Trustee for Michael Hayes Family Trust v Commissioner of Taxation at [77]-[91]. On the basis of his Honour's comments in those paragraphs, I am satisfied that the deed of rectification is of no effect.

25           If I am wrong about that, then it must follow from the facts that the trust deed can be rectified so as to exclude or reverse the attempt at rectification that was made by means of the so-called deed of rectification. For these reasons, I will make the orders sought by the plaintiffs.

26           I order that the that the Hollandia Family Trust Deed, dated 25 August 2022, be rectified by amending its terms to embody the intention of the parties to that document by making the amendments set out in the schedule to the Statement of Claim, as amended. I declare that the deed of rectification, dated 13 February 2023, is of no effect. I direct that the defendant be provided with a copy of the schedule to the Statement of Claim as amended.