In the Matter Of An Application BY ETU (National) Pty Ltd
[2014] VSC 525
•7 OCTOBER 2014 (REVISED 16 OCTOBER 2014)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
SCR 4957 of 2014
| IN THE MATTER OF AN APPLICATION BY ETU (NATIONAL) PTY LTD | Plaintiff |
| (ACN 120 838 164) |
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JUDGE: | DIXON J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 7 OCTOBER 2014 |
DATE OF JUDGMENT: | 7 OCTOBER 2014 (REVISED 16 OCTOBER 2014) |
CASE MAY BE CITED AS: | IN THE MATTER OF AN APPLICATION BY ETU (NATIONAL) PTY LTD |
| MEDIUM NEUTRAL CITATION: | [2014] VSC 525 |
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EQUITY - Equitable remedies - Trust deeds – Mistake in drafting - Accidental omission of powers to accumulate and distribute income - Common intention to include such powers established - Rectification ordered.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Dr I. Hardingham, QC with Mr M. Barrett | Riordans Lawyers |
HIS HONOUR:
The plaintiff ETU National Pty Ltd was incorporated on 20 July 2006 in Victoria and is the trustee of each of the ETU Arden Trust (Deed dated 23 December 2009), the ETU Comrades Trust (Deed dated 23 September 2009), the ETU Morwell Trust (Deed dated 23 September 2009) and the ETU Swanston Street Trust (Deed dated 23 September 2009).
By originating motion dated 16 September 2014 the plaintiff seeks rectification of each of the trust deeds by the insertion of powers to accumulate and distribute income.
In making the application the plaintiff relies on three affidavits. Mr Andrew Verdnick, a partner of Hall & Wilcox, was the solicitor responsible for the preparation of the trust deeds. Mr Craig Lutwyche was ETU's accountant and the settlor of each of the trusts. Dean Mighell, was a director and secretary of the plaintiff at the time that each trust deed was executed.
Those affidavits establish the following circumstances. In 2000, Hall & Wilcox were retained by ETU to draft two discretionary trust deeds called the ETU (Victorian Branch) Trust and the ETU (DMT) Trust. Only the first of those trusts is relevant on this application.
The purpose of those trusts was to hold property and operate primarily as investment vehicles. To that end, the powers contained in the deed for the ETU (Victorian Branch) Trust included the power to accumulate and distribute income.
Hall & Wilcox advised ETU to establish four separate discretionary trusts between 2005 and 2009. ETU’s intention, and its instructions to Hall & Wilcox for the preparation of the four trust deeds, was for the deeds to be substantially on the same terms as the trust deed of the ETU (Victorian Branch) Trust, including the power to accumulate and distribute income. In preparing the deeds, Hall & Wilcox intended that they substantially reflect the terms of that trust, including the power to accumulate and distribute income.
However, in the light of the then recent decision of Bamford v Commissioner of Taxation[1], Hall & Wilcox considered it prudent to insert into each trust deed a clause empowering the trustee to determine whether money that came into its hands was to be treated as income or capital. Such a clause was drafted into the deeds. However, due to a drafting error, it was inserted into the deeds in place of the existing accumulation and distribution clause rather than in addition to it.
[1][2009] FCAFC 66.
The result is that there is currently no power to accumulate and distribute income in any of the four deeds.
The deeds were executed on 23 December 2009 by Messrs Mighall and Alex McCallum in their capacity as directors of the plaintiff/trustee, and Mr Lutwyche as settlor of the trust. Mr Lutwyche was chosen as settlor because he was ETU's accountant. He had no relevantly independent intention in settling the trusts, other than to give effect to the intention of ETU and the trustee.
Where by mistake, a written agreement does not accord with the agreement or continuing intention of the party or parties who executed it, the Court of Equity has power to order that the instrument be rectified so as to make it accord with the true intention.[2] Spry identified the simplest cases as those such as the present where, ‘a provision that is intended to be included is inadvertently omitted’.[3]
[2]Spry, The Principles of Equitable Remedies, (7th ed), (2007), 610; Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336, 350 (Mason J, Menzies J agreeing); Franknelly Nominees Pty Ltd v Abrugiato [2013] WASCA 285, [177] per Buss JA; Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] VSCA 2, (2001) 3 VR 526, 527-8 (Tadgell JA), 537-8 (Phillips JA), (Chernov JA concurring).
[3]Spry, The Principles of Equitable Remedies, (7th ed), (2007), 611.
Rectification is not limited to bilateral agreements but is available for unilateral instruments such as trust deeds.[4] Rectification is not barred because the instrument was read before it was executed.[5] Accordingly, courts have, in appropriate cases, ordered rectification notwithstanding that the parties had obviously intended to execute the documents settled by their solicitors.[6]
[4]Spry, The Principles of Equitable Remedies, (7th ed), (2007), 614; Meagher Gummow and Lehane’s Equity: Doctrines and Remedies (4th ed), [26-055]; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 331A; Re Butlin’s Settlement Trusts [1976] Ch 251, 260.
[5]See Spry, Equitable Remedies (7th ed) at p 611-12 cited in Ryledar Pty Ltd v Euphoric Pty Ltd (2009) 69 NSWLR 603, 629-633 [130]-[131] (Tobias JA, Mason P and Campbell JA agreeing); Carlenka ibid, 332G, 343D-344D; Butlin, ibid.
[6]See Club Cape Schanck (2001) 3 VR 526, [38] referring to Carlenka.
The mistakes which may be corrected by rectification include mistakes as to the effect and not merely the form of an instrument.[7] However, Equity will not grant rectification where a mistake by the parties relates only to the expected consequences or advantages of a contract or transaction and not to the expression in the instrument of what the parties actually agreed or intended.[8] No such complications arise in the present case as it does not concern the unintended consequences of intended or known clauses, but rather concerns an accidental omission from the deeds of intended clauses.
[7]Franknelly [2013] WASCA 285, [178] and cases cited.
[8]Franknelly ibid, [179] and cases cited.
An applicant for rectification must establish two matters by convincing proof:[9] firstly, that the instrument does not embody the common continuing intention of the party or parties at the time when the instrument was executed;[10] and secondly, what the common intention was.[11]
[9]Pukallus v Cameron (1982) 180 CLR 447, 456 (Brennan J); Franknelly ibid, [181]; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603, 712-714 [451]-[461].
[10]Club Cape Schanck (2001) 3 VR 526, [14]; Franknelly ibid, [180-1]; Spry (7th ed), 611-612 and Ryledar (2009) 69 NSWLR 603, 629-633 [130]-[131].
[11]Slee v Warke [1949] HCA 57; (1949) 86 CLR 271, 281 (Rich, Dixon and Williams JJ); Club Cape Schanck ibid, 531 [14]; Ryledar ibid, 632 [138], 655 [259]; Metcash 2009) 76 NSWLR 603, 712 [451].
The common intention must be put forward in clear and precise terms so that the court can determine both the substance and detail of the precise variation to be made to the instrument.[12] The court must not assume the task for itself of drafting the instrument for the parties.[13] It must appear that if rectified as claimed, the written instrument would represent the true agreement of the party or parties at the time it was executed.[14] Where rectification is granted by a court it relates back to the time of execution of the instrument so that the instrument is taken to have existed in its rectified form at all times and is to be read as if originally executed in its rectified form.[15]
[12]Metcash ibid, 711 [446].
[13]Pukallus (1982) 180 CLR 447, 452.
[14]Club Cape Schanck (2001) 3 VR 526, [14].
[15]See Spry, Equitable Remedies (6th ed, 2001), 615.
I am satisfied that the plaintiff’s affidavits provide clear and convincing proof that the intention at the time of execution of the deeds was that the four trusts would hold property on substantially the same terms as the original head trust, the ETU (Victorian Branch) Trust, which included the power to accumulate and distribute income.
There is direct evidence from the trustee, the settlor and the solicitor as to that intention. That evidence is supported by a contemporaneous and consistent written record of the instructions given to the solicitor and I accept it.
It is apparent on the face of the four deeds that they do not contain the power to accumulate and distribute income and that they do not accord with the intention of the plaintiff/trustee, ETU, or the settlor at the time the deeds were executed.
There is an explanation as to how this disconformity came about. Mr Verdnick concedes that it was as a result of a drafting error. The clauses were erroneously substituted for the accumulation and distribution clauses, rather than inserted in the deeds in addition to them. None of the parties who executed the deeds realised that the accumulation and distribution clauses had been mistakenly omitted.
Rectification is simply achieved by inserting into the four trust deeds at the end of clause 5, accumulation and distribution clauses substantially mirroring those in the trust as originally intended. Those clauses are set out in the originating motion in this proceeding. I will make orders in accordance with the claim as set out in the originating motion, to the effect that each trust deed be and is hereby rectified by inserting immediately following clause 5.5 new clauses, numbered 5.6, 5.7, 5.8 and 5.9, in terms that I need not recite in these reasons.
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