Keadly Pty Ltd & Ors - [2015] SASC 124

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
KEADLY PTY LTD & ORS
[2015] SASC 124
Judgment of The Honourable Justice Bampton
21 August 2015
DEEDS - ALTERATION OF DEED AFTER EXECUTION
EQUITY - GENERAL PRINCIPLES - MISTAKE - EQUITABLE REMEDIES - RECTIFICATION - WHERE MUTUAL MISTAKE
The plaintiffs are the settlor and trustees of three family trusts – land was transferred to each of the three trusts in 2012 – trustees were advised that the proposed transfers met the criteria for exemption from stamp duty as interfamilial transfers of farming property pursuant to s 71CC of the Stamp Duties Act 1923 (SA) (the Act) – trust deeds did not restrict the definition of beneficiaries to relatives as defined in the Act – the Deputy Commissioner of State Taxation (the Commissioner) conducted a random audit of the transfers in 2014 and issued each trustee with a Notice of Assessment of Liability to Stamp Duty – each trustee objected to the assessments – the Commissioner deferred a decision on the objection to afford the trustees an opportunity to apply to this Court for rectification of the trust deeds.
The plaintiffs sought to rectify the trust deeds by amending the definition of beneficiaries in each of the trust deeds so that the transfers would be exempt from stamp duty under s 71CC of the Act – whether trust deeds expressed the true intention of the settlor – whether error or mistake in preparation of the trust deeds.
Held:
1. The trust deeds do not express the true intention of the settlor.
2. The trust deeds dated 12 April 2012 be rectified to remove all references to beneficiaries other than those provided for in s 71CC of the Act and insert a specific reference to beneficiaries as defined in s 71CC in terms of draft minutes of order to be settled by the Court.
Stamp Duties Act 1923 (SA) s 71CC, referred to.
Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies Heydon, Dyson, Mark Leeming and Paul Turner (Lexis Nexis Butterworths, 5th ed, 2015); Day v Day [2014] Ch 114; Franklins Pty Ltd v Metcash Trading Limited (2009) 76 NSWLR 603; Kirkham as trustee of the Kirkham Family Trust [2010] WASC 106; Re Butlin’s Settlement Trusts [1976] 1 Ch 251; Re Slocock’s Will Trusts [1979] 1 All ER 358; Weeds v Blaney [1978] 2 E.G.L.R. 84, considered.

KEADLY PTY LTD & ORS
[2015] SASC 124
Civil: Application
BAMPTON J.

The trustees of three family trusts and the settlor of the trusts seek to rectify the trust deeds establishing the trusts by amending the definition of the beneficiaries in each of the trust deeds.
Background
The Rohrlach brothers Kevin, Graham, and Wayne Rohrlach are third generation vignerons. Their grandparents first established a vineyard in the Barossa Valley in the late 1800’s.
The Rohrlach brothers and their respective wives (the three families) have run the vineyard as a family business. The business was operated by Rohrlach Holdings Pty Ltd as trustee for the Rohrlach Family Trust.
The business was conducted on 12 individual titles of land, being land variously owned by Kevin, Rohrlach Holdings Pty Ltd as trustee for the Tedella Trust, Kevin and Graham jointly, and Kevin, Graham and Wayne jointly.
As the three families wanted their adult children to take over the family business as fourth generation vignerons, it was agreed in or about 2010 that the land held by the family business should be divided between the three families.
In 2010, the Rohrlach brothers consulted their family accountant, Peter Reimann, regarding the separation of the family business into three separate businesses. Mr Reimann gave advice that the proposed transfers of land between the Rohrlach family members met the criteria for exemption from stamp duty as interfamilial transfers of farming property pursuant to s 71CC of the Stamp Duties Act 1923 (SA) (the Act).
Acting on Mr Reimann’s advice the three families gave instructions for the creation of three discretionary trusts and the incorporation of three trustee companies. The entities created are:
·Keadly Pty Ltd as trustee for the KJ & LE Rohrlach Family Trust;
·GD & LF Rohrlach Pty Ltd as trustee for the Gralyn Family Trust; and
·WS & KA Rohrlach Pty Ltd as trustee for the WS & KA Rohrlach Family Trust.
Mr Reimann was the settlor in respect of each of the three trusts. The trusts are land holding entities.
Land was transferred from Rohrlach Holdings Pty Ltd to each of the three trusts. The land transfers and family farm declarations were stamped by the Rohrlach family solicitor, Mr Brenton Miegel of Teusner and Co.
In May 2014, the Deputy Commissioner of State Taxation (the Commissioner) conducted a random audit of the transfers.
As the beneficiaries defined under the trust deeds were not restricted to relatives as defined in s 71CC of Act[1] the transfers did not comply with s 71CC and did not qualify for the exemption from stamp duty. As such the Commissioner issued three Notices of Assessment of Liability to Stamp Duty to each of the trustees, Keadly Pty Ltd, GD & LF Rohrlach Pty Ltd and WS & KA Rohrlach Pty Ltd. Each of the trustees has objected to the assessments.
[1] See affidavit of Angela Marie Rossi filed 25 May 2015 (FDN 17).
By letter dated 3 December 2014, the Commissioner advised the trustees that a decision on the objection “will be deferred to afford your client the opportunity to apply to the Supreme Court for rectification of the Trust Deeds so that their range of beneficiaries can be restricted”.[2]
[2] Exhibit P1, p 100.
The proceedings seeking rectification
These proceedings were commenced on 20 January 2015. The following affidavits were received into evidence in support of the orders sought:
·Affidavit of Kevin John Rohrlach (FDN 10);
·Affidavit of Graham Donald Rohrlach (FDN 11);
·Affidavit of Wayne Stephen Rohrlach (FDN12);
·Affidavit of Lynette Faye Rohrlach (FDN 13);
·Affidavit of Kaylene Ann Rohrlach (FDN 14).
·Affidavit of Lynette Ellen Rohrlach (FDN 15);
·Affidavit of Brenton John Miegel (FDN 16);
·Affidavit of Angela Marie Rossi (FDN 17); and
·Affidavit of Peter Wayne Reimann (FDN 18).
Mr Reimann gave evidence at the hearing of the application supplementing the matters deposed to in his affidavit.
The Commissioner
The Commissioner was named as a party to the proceedings. In a letter dated 11 February 2015 to solicitors acting for the trustees, the Commissioner stated that he has no interest in the application and asked that he be disjoined from the proceedings. An order was made disjoining the Commissioner on 25 June 2015.
The establishment of structures to facilitate the transfer of land
Mr Reimann gave evidence that the family business was conducted by way of monthly meetings chaired by him. Mr Reimann did not keep minutes of the meetings or make notes of the meetings on a regular basis. He did, however, make ad hoc notes.
Discussions concerning the separation of the family business took place at the monthly meetings between 2010 and April 2012. Mr Reimann spent a great deal of time researching and considering the taxation issues. He had never before been asked as to effect a transaction of such complexity.
Mr Reimann has set up discretionary trusts for other clients and had been involved in setting up the Tedella Trust for the Rohrlach family. Pursuant to his involvement in establishing the Tedella Trust, Mr Reimann was aware of s 71CC of the Act.
Mr Reimann understood the effect of s 71CC of the Act was that transfer of land from a person to a discretionary trust where the beneficiaries of the trusts were relatives of the person within the definition in s 71CC would be exempt from stamp duty.
Mr Reimann advised the three families of the ability to transfer the various parcels of land to family trusts and the exemption from stamp duty under s 71CC.
In setting up the Tedella Trust, Mr Reimann had obtained a trust deed pro forma which complied with s 71CC from Matthew Nassaris of the company Incorporation Specialists.
In researching this matter during 2010 and 2011, Mr Reimann downloaded the following documents from Renevue SA’s website:
·“Circular 109’; and
·“Stamp Duty Document Guide” dated September 2008, a copy of which Mr Reimann obtained about the same time he obtained Circular 109.
These documents confirmed Mr Reimann’s understanding of s 71CC.
Mr Reimann advised the three families how they could transfer parcels of land to family trusts and be exempt from stamp duty under s 71CC.
In his affidavit, Graham Rohrlach deposes that on 8 August 2011 he and his brothers instructed Mr Reimann to set up the necessary structures to facilitate the transfers. The brothers understood, relying on the expertise of Mr Reimann and Mr Miegel, that the transfers would not incur stamp duty.
On 14 March 2012, Mr Reimann instructed Mr Miegel to attend to the transfers of land from Rohrlach Holdings Pty Ltd to the trusts established for each of the three families.
Mr Miegel deposes in his affidavit that he understood that the trusts that were to receive the land were to be compliant with s 71CC. Exhibited to his affidavit are; a copy of his letter dated 14 March 2012 to Mr Reimann and an email dated 15 March 2012 referring to the fact that the transfers were to be in accordance with the Family Farm exemptions provided for in the Act.
On 10 April 2012, Mr Reimann obtained the forms from the website of Nassaris Rossi Business Services Pty Ltd (Nassaris Rossi), a business established by Matthew Nassaris. Mr Reimann completed the forms to establish each of the trustee companies and the discretionary trusts and faxed the instructions to Nassaris Rossi.
Mr Reimann gave evidence that he did not specifically instruct Nassaris Rossi to restrict the beneficiaries of the trusts to those within the definition of relatives in s 71CC.[3] Mr Reimann assumed that the trust documents produced by Nassaris Rossi would be compliant with s 71CC.
[3] See affidavit of Angela Marie Rossi filed 25 May 2015 (FDN 17).
The trustee companies were incorporated on 12 April 2012. The trust deeds for the each of the trusts, which are identical, were provided to Mr Reimann on 16 April 2012. The beneficiaries of each trust include companies, trusts and charitable entities.[4]
[4] Exhibit P1, pp 12-13; 32-33; 52-53.
Mr Reimann said that upon receiving the three trust deeds he took them, without reading them, to each of the family members and had them signed. Neither Mr Reimann nor the family members read the deeds.
The deeds were then returned to Nassaris Rossi who attended to their stamping on 19 April 2012.
Copies of the deeds were provided to Mr Miegel. On 2 May 2012, Mr Miegel prepared memoranda of transfers for each of the parcels of land to be transferred and statutory declarations from each of the family members for the purposes of s 71CC.
As at May 2012 transactions in accordance with s 71CC were able to be self‑determined and were not required to be submitted to the Commissioner for assessment of duty. Mr Miegel assessed the duty as exempt and stamped the transfers. He registered the transfers and retained the statutory declarations.
In late 2013, the Commissioner received advice from the Crown Solicitor as to the proper construction of s 71CC and issued Revenue Ruling SDA007. The effect of this ruling was that “the exemption in [s 71CC] cannot be applied to transfers involving trusts which have more than one beneficiary”.[5] The Commissioner stated in this ruling that “this advice is a significant departure from Revenue SA’s longstanding assessing practices”.[6] In December 2013, the Treasurer approved an ex gratia scheme to provide “stamp duty relief so that Revenue SA’s existing assessing practice in relation to s 71CC can be maintained”. It was submitted that the effect of that scheme was effectively to continue to exempt transfers to discretionary trusts in accordance with the understanding of Mr Reimann and Mr Miegel.
[5] Exhibit P1, p 94.
[6] Exhibit P1, p 94.
Following the random audit of the transfers by the Commissioner in May 2014, as the transfers did not comply with s 71CC and did not fall within the ex gratia scheme, stamp duty was assessed and the Notices of Assessment were issued to each of the three trustees.
Discussion
The Court has the jurisdiction to rectify a trust deed so that it expresses what a settlor intended.[7]
[7] Dyson Heydon, Mark Leeming and Peter Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (Lexis Nexis Butterworths, 5^th ed, 2015) 944 citing Re Butlin’s Settlement Trusts [1976] 1 Ch 251 at 260-261, 262.
As there was no actual bargain between Mr Reimann and the trustees, Mr Reimann as a settlor “may seek rectification by proving that the settlement does not express his true intention”.[8]
[8] Re Butlin’s Settlement Trusts [1976] 1 Ch 251 at 262; Day v Day [2014] Ch 114 at [22].
I accept Mr Reimann’s evidence that the trust deeds do not express his true intention and that his true intention was that the beneficiaries under the trusts would be restricted to relatives within the meaning of s 71CC. I am satisfied that Mr Reimann has made a mistake about the words used in the trust deeds. He assumed the words used did not include anyone other than relatives within the meaning of s 71CC.
Mr Reimann did not intend to establish trusts with beneficiaries that were not restricted to relatives within the meaning of s 71CC. The evidence that supports Mr Reimann’s evidence are the documents on his file obtained from Revenue SA and the understanding of the Rohrlach brothers, deposed to in their affidavits, that stamp duty would not be payable on the transfers, as well as Mr Miegel’s affidavit.
It is no bar to rectification that the mistake in the trust deeds is due to Mr Reimann’s negligence.[9] It is also not a bar to rectification that it is sought to avoid stamp duty liability.[10]
[9] See Weeds v Blaney [1978] 2 E.G.L.R. 84.
[10] Re Slocock’s Will Trusts [1979] 1 All ER 358 at 363.
Conclusion
I am satisfied the evidence before me constitutes “convincing proof”[11] justifying the making of an order permitting the correction of the mistake in the trust deeds.
[11] Dyson Heydon, Mark Leeming and Peter Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (5^th ed, 2015) at 941-942; Franklins Pty Ltd v Metcash Trading Limited (2009) 76 NSWLR 603 at [451].
Having regard to the affidavits filed in support of the application and the evidence of the settlor, Mr Reimann, I am satisfied the plaintiffs have established a sufficient case for rectification. I am satisfied that there was a mistake or inadvertent error in the preparation of the three trust deeds. I am satisfied that it was the intention of Mr Reimann in accordance with the instructions from the Rorhlach brothers that the beneficiaries of each of the trusts would be only the persons who fall within the definition of relative in s 71CC of the Act.
As Martin CJ stated in Kirkham as trustee of the Kirkham Family Trust:[12]
There is no reason to doubt that assertion. It is logical, plausible and consistent with the original reasons for the creation of the trust.
[12] [2010] WASC 106 at [12].
Mr Reimann deposes in his affidavit that the trusts “were established as land holding entities and as such do not trade and are held for the sole purpose of perpetual succession of future generations”.
As rectification relates back to the time of execution of the document, so that it is taken to have existed in its rectified form at all times, upon rectification the transfers would be exempt from duty pursuant to s 71CC and the ex gratia scheme.
I order that the trust deeds dated 12 April 2012 between:
·Keadly Pty Ltd as trustee and Peter Reimann as settlor;
·GD and LF Rohrlach Pty Ltd as trustee and Peter Reimann as settlor; and
·WS and KA Rohrlach Pty Ltd as trustee and Peter Reimann as settlor,
be rectified to remove all references to beneficiaries other than those provided for in s 71CC of the Act and insert a specific reference to beneficiaries as defined in s 71CC in terms of draft minutes of order to be settled by me. The draft minutes are to identify the precise words of the trust deeds that are to be struck out, the precise words that are to be inserted, and where those words are to be inserted.