Wilstead No. 5 Pty Ltd v Smyth
[2020] VSC 651
•7 October 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2020 01116
| WILSTEAD NO. 5 PTY LTD (ACN 006 983 482) as trustee of the Bowen Family Trust | Plaintiff |
| v | |
| ANTHONY PAUL SMYTH | Defendant |
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JUDGE: | LYONS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1 October 2020 |
DATE OF JUDGMENT: | 7 October 2020 |
CASE MAY BE CITED AS: | Wilstead No. 5 Pty Ltd v Smyth |
MEDIUM NEUTRAL CITATION: | [2020] VSC 651 |
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TRUSTS – Trust Deed – Definition of Primary Beneficiaries – Whether definition absurd – Whether Court should delete words if absurd – No absurdity established.
TRUSTS – Trust Deed – Equity – Rectification – Definition of Primary Beneficiaries – Whether definition did not reflect common intention of settlor and trustee – Clear and convincing proof of common actual intention – Form of rectification clear and precise in its terms, reflecting the actual common intention – Rectification granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr M Barrett | Thomson Geer |
| For the Defendant | Mr B Gillies | Carrick Gill Smyth |
HIS HONOUR:
INTRODUCTION
The plaintiff is the trustee of the Bowen Family Trust (the ‘Trust’) established by the Bowen Family Trust Deed dated 19 August 1988 (the ‘Trust Deed’). The issue before the Court is whether each of Robert Evan Bowen, who was responsible for establishing the Trust, and his then wife Venetia Kitson Bowen (‘Mrs Bowen’) is a Primary Beneficiary of the Trust. The plaintiff seeks a declaration that on the proper construction of the Trust Deed each of them is a Primary Beneficiary of the Trust. Alternatively, it seeks an order for rectification of the Trust Deed to that effect.
Because the class of Primary Beneficiaries under the Trust Deed, as properly construed, may include children not yet of full age or unborn children who may be affected by the relief sought in this proceeding (including the children of the children of Mr Bowen and Mrs Bowen), I ordered that Mr Smyth be appointed to represent the Primary Beneficiaries other than those of full age who provided affidavits signalling their consent to the orders sought in this matter (‘Represented Class’), and that Mr Smyth be named as defendant in the proceeding in his capacity as representative of the Represented Class.
For the reasons that follow, I have concluded it appropriate to order rectification of the Trust Deed in the terms sought by the plaintiff.
BACKGROUND TO THE TRUST
The plaintiff relies on the affidavits of:
(1) Mr Bowen sworn 4 February 2020 (‘Mr Bowen’s affidavit’);
(2) Mrs Bowen sworn 10 January 2020 (‘Mrs Bowen’s affidavit’);
(3) Hannah Louise Brooks (née Bowen) affirmed 10 January 2020 (‘Hannah Brooks’ affidavit’);
(4) Lucy Anne Bowen affirmed 16 January 2020 (‘Lucy Bowen’s affidavit’);
(5) Alice Jane Bowen affirmed 10 January 2020 (‘Alice Bowen’s affidavit’); and
(6) Michael John Anthony Tiernan sworn 19 February 2020 (‘Mr Tiernan’s affidavit’).
The defendant relies on the affidavit of Mr Smyth sworn 17 July 2020.
The relevant facts are not in dispute.
Mr Bowen married Mrs Bowen in 1983. They were divorced on 13 January 2011.
They have 3 children: Hannah, born 9 November 1985; Lucy, born 5 June 1987; and Alice, born 4 January 1990. Hannah married Nicholas Christopher Brooks on 15 November 2013 and they have one child, Matilda Kitson Brooks, born 30 January 2018.
Mr Bowen began his working career in 1982 as a builder. In 1989, he and two associates established Henley Homes which, by the late 1990s, grew to be one of Australia’s leading home builders. In 2009 that business was sold. Mr Bowen retains a percentage interest.
In 1988, Mr Bowen was advised by his accountant at the time to establish a family discretionary trust. Mr Bowen approached his friend, Mr Tiernan, then a partner of Maurice Blackburn & Co to prepare a standard family trust deed. Mr Bowen deposed that the purpose of the Trust was to permit income generated by Mr Bowen to be distributed to him and his then wife and their family in the most tax effective way.
The plaintiff was incorporated on 25 May 1988. Mr Bowen has been a director and secretary of the plaintiff since 18 August 1988. Mrs Bowen was a director between 18 August 1988 and 21 June 2011.
THE TRUST DEED
On 19 August 1988 the Trust Deed was executed by Mr Tiernan as settlor and the plaintiff as trustee. Mr and Mrs Bowen signed as directors of the plaintiff as trustee.
The recital to the Trust Deed provides that the settlor was ‘desirous of making provision for the Primary Beneficiary, Primary Beneficiaries and General Beneficiaries hereinafter described as in the manner hereinafter set out …’.
Clause 1 of the Trust Deed is the interpretation clause.
First, cl 1.2 defines the ‘General Beneficiaries’ relevantly as follows:
1.2.1the Primary Beneficiary or Primary Beneficiaries as the case may be; and
1.2.2the spouses, children and grandchildren of the Primary Beneficiaries; and
1.2.3the brothers, sisters, fathers, mothers, grandfathers, grandmothers, uncles and aunts of the Primary Beneficiaries; and
1.2.4the spouses and children of the persons described in sub-paragraph 1.2.3 hereof; and
1.2.5any of the following entities whether formed in Australia or elsewhere which the Trustee may at any time and from time to time nominate in writing as a General Beneficiary…
PROVIDED HOWEVER that:
1.2.6any person from time to time being the Settlor, the Guardian, the Appointer or the Trustee or Trustees hereof (hereinafter called “an excluded person”); and
1.2.7any corporation in which and the trustees of any settlement or trust in or under which and any other legal entity in which any excluded person has any actual or contingent beneficial interest so long as such intent continues
are excluded from the class of General Beneficiaries unless specifically included in Clause 1.1 as a Primary Beneficiary.
Second, cl 1.1 of the Trust Deed relevantly provides:
1.1The “Primary Beneficiary” and the “Primary Beneficiaries” means the children of the persons referred to in the Schedule hereto.
Third, there is one Schedule to the Trust Deed. It provides as follows:
Name of Trust: BOWEN FAMILY TRUST
The Primary Beneficiary: Robert Evan Bowen and Venetia Kitson Bowen and the children of Robert Evan Bowen and Venetia Kitson Bowen
The Guardian: Robert Evan Bowen and upon his death Venetia Kitson Bowen
The Appointor: Robert Evan Bowen and upon his death Venetia Kitson Bowen
The Trust Deed does not establish any different classes of interest within the General Beneficiaries. Clause 3.2 relevantly provides that the Trustee may accumulate the net income of the Trust or to pay the net income of the Trust in its absolute discretion for any one or more of the General Beneficiaries. Clause 4 relates to the distribution of the income and capital on the vesting of the Trust. It is a difficult clause to understand. It relevantly appears to provide that on vesting:
(1) the Trustee may distribute the income and capital of the Trust to such of the General Beneficiaries and in such proportions as appointed by instrument with the consent of the guardian;
(2) in default of such appointment, the Trustee may distribute the income and capital of the Trust to the Primary Beneficiaries in cl 1.1 and if more than one Primary Beneficiary as tenants in common in equal shares.
In light of the Trust Deed an issue has now arisen as to the meaning of the provisions on the Trust Deed relating to the Primary Beneficiaries. As I set out below, when cl 1.1 and the Schedule are read together, it is only the children of Mr Bowen and Mrs Bowen and the children of the children of Mr Bowen and Mrs Bowen who are Primary Beneficiaries under the Trust Deed. That would mean that neither of Mr Bowen or Mrs Bowen is a Primary Beneficiary. Of course each may be a General Beneficiary under cl 1.2.3 as the father and mother respectively of the Primary Beneficiaries. However, as Mr Bowen is both guardian and appointor, he would not be a General Beneficiary pursuant to cl 1.2.6.
The result is that Mrs Bowen is a General Beneficiary and Mr Bowen is neither a Primary or a General Beneficiary. In this proceeding the plaintiff seeks relief on the basis that this was not the subjective or objective intention of the parties. As a result, the affidavit material filed addressed the circumstances in which the Trust Deed was executed. I will now deal with that evidence.
EVIDENCE
There is direct evidence from Mr Tiernan, the solicitor who prepared the Trust Deed, and Mr Bowen, who was a director of the plaintiff at all relevant times, that it was their intention at the time the Trust Deed was executed that Mr Bowen and Mrs Bowen and their children would be primary beneficiaries of the Trust.
First, Mr Bowen has deposed that:[1]
[1]Mr Bowen’s affidavit, [12]-[13].
(1) following advice from his accountant at the time, he contacted Mr Tiernan to prepare a standard family trust deed;
(2) Mr Tiernan advised Mr Bowen to include Mr Bowen, his wife and their children (two of the three were born at the time) as beneficiaries of the Trust; and
(3) Mr Bowen discussed with Mr Tiernan that if a trust were established, the income generated by Mr Bowen could be distributed to Mr Bowen, Mrs Bowen and their family in the most tax effective way.
Mr Bowen also deposed that, from the time of creation of the Trust, he always intended that he would be a beneficiary of the Trust and would receive distributions from it, and that family wealth could also be distributed through the Trust to Mrs Bowen and their family. He deposed it was his intention that the Trust would generate income that could be used to fund his living expenses, as well as for investment or distribution purposes.[2]
[2]Mr Bowen’s affidavit, [20]-[21].
Second, Mr Tiernan deposed that:[3]
[3]Mr Tiernan’s affidavit, [7]-[11].
(1) at the relevant time, Mr Tiernan was the partner in charge of Maurice Blackburn & Co’s offices in Ballarat and Beaufort. Mr Tiernan primarily practiced in personal injuries law. Mr Tiernan could not recall with certainty if he had previously prepared a family trust;
(2) Mr Tiernan advised Mr Bowen to include Mr Bowen, his then wife and their future children as beneficiaries, consistent with Mr Tiernan’s own family trust. He considered that this was standard practice for such family trusts;
(3) Mr Bowen did not instruct Mr Tiernan to exclude Mr Bowen as a beneficiary under the Trust Deed, and that would have been ‘most unusual’ in the circumstances. To the best of Mr Tiernan’s recollection, this would have been contrary to the instructions he recalls receiving from Mr Bowen;
(4) Mr Bowen agreed to proceed with creation of the Trust on the basis of Mr Tiernan’s advice and instructed Mr Tiernan to prepare a deed accordingly;
(5) Mr Tiernan prepared or caused to be prepared the Trust Deed and recorded himself as settlor. Mr Tiernan’s appointment as settlor was purely for convenience and Mr Tiernan had no relevant intention as settlor other than to give effect to Mr Bowen’s intentions in creating a standard family trust; and
(6) if the Trust Deed does not include Mr Bowen as a Primary Beneficiary then that is in error and contrary to Mr Bowen’s instructions and Mr Tiernan’s intentions in drafting the Trust Deed.
Third, Mrs Bowen has deposed that:[4]
(1) she can recall very little from the time that the Trust was created, particularly around the creation of the Trust itself; and
(2) based on her recollection of conversations with Mr Bowen at the time of creation of the Trust, it was always intended that he would be a beneficiary of the Trust and would be entitled to receive distributions.
[4]Mrs Bowen’s affidavit, [4]-[5].
Further, there is evidence that all the parties have proceeded on the basis that Mr Bowen has been a Primary Beneficiary since the Trust was established. The Henley Homes business, and the work Mr Bowen has done in it, is the source of almost all the wealth Mr Bowen generated over the years and which has gone to make up the assets of the Trust. Mr Bowen deposed that almost all of the income he generated through the Henley Homes business and other smaller ventures has been directed through the Trust. Apart from those contributions, there have not been any other substantial contributions other than that generated by the investment of the trust funds. No other beneficiaries have made any contributions to the Trust. Income of the Trust has been distributed over the years to Mr Bowen, Mrs Bowen and their children.[5]
[5]Mr Bowen’s affidavit, [22]-[24].
In addition, each of the children of Mr and Mrs Bowen, (Hannah, Lucy and Alice), have deposed that based on the fact that Mr Bowen was the primary contributor financially to the family at the time, and discussions over the years, they believe it was always intended that he would be a Primary Beneficiary and would be entitled to receive distributions.[6]
[6]Hannah Brooks’ affidavit, [6]-[8]; Lucy Bowen’s affidavit, [6]-[8]; Alice Bowen’s affidavit, [6]-[8].
Finally, Mr Smyth, as representative of the Represented Class, has also filed an affidavit in this proceeding. Mr Smyth deposed that he has been assured by the plaintiff that there were no other trust deeds drafted in the five years prior or the five years after the making of the Trust Deed of which Mr and Mrs Bowen were beneficiaries.
CONTRACTUAL CONSTRUCTION
The Submissions
The plaintiff submitted that there is an irreconcilable inconsistency in the definitions of ‘Primary Beneficiary’ appearing in cl 1.1 on the one hand, and the Schedule of the Trust Deed on the other. At a practical level, as set out above, these clauses raise a question whether each of Mr and Mrs Bowen is a ‘Primary Beneficiary’ for the purposes of the Trust, and also as a consequence, whether Mr Bowen is excluded from the class of General Beneficiaries by operation of cl 1.2.6.
The plaintiff submitted that effect cannot fairly be given to both clauses.[7] It submitted there were two alternative forms of relief available: one based in the principles of contractual construction and one based in rectification.
[7]See below n 11.
As to the first, the plaintiff submitted that it may be presumed from the terms of the Schedule and the purpose of the Trust expressed in the preamble, and implicit in its name (the ‘Bowen Family Trust’), that what was intended was that Mr Bowen and his wife and children were to be Primary Beneficiaries. As a result it submitted that the inconsistency is appropriately remedied, as a matter of construction, by deleting the words ‘children of the’ in cl 1.1. That would have the effect of rendering the definition of ‘Primary Beneficiary’ in cl 1.1 consistent with the definition of ‘Primary Beneficiary’ in the Schedule and the relevant presumed intention.
As to the second the plaintiff submitted that the Trust Deed should be rectified by deleting the words ‘children of the’ in cl 1.1. It submitted that this is consistent with the common intention of those who signed the Trust Deed deposed to in the affidavit material and set out above.
The defendant did not support the plaintiff’s submissions based upon construction of the Trust Deed; rather he submitted that it is more appropriate for the Court to order rectification of the Trust Deed in this case.
Analysis
The plaintiff submitted that:
(1) The principles governing the interpretation of a contract apply also to trust instruments.[8]
[8]Relying upon for example Byrnes v Kendle (2011) 243 CLR 253, 275 [59], 286 [102].
(2) The primary duty of a Court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied.[9]
[9]Relying upon Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, [16].
(3) In order to do so, the Court must consider the whole of the instrument since the meaning of any one part may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.[10]
[10]Ibid.
(4) Where provisions in an instrument are inconsistent with each other ‘such that effect cannot fairly be given to both clauses’,[11] then ‘effect ought to be given to that part which is calculated to carry into effect the real intention, and that part which would defeat it should be rejected’.[12]
(5) In order to give effect to (4) ‘words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency’.[13]
(6) ‘Courts both of law and equity regularly insert, alter and interpret words in such a fashion as to make a document sensible, without necessary recourse to any doctrine of rectification. In effect they employ a doctrine of rectification by construction’.[14]
[11]Relying upon for example J D Heydon, Heydon on Contract (Thompson Reuters, 2019) 280 [8.670].
[12]Ibid 281 [8.670].
[13]Relying upon Fitzgerald v Masters (1956) 95 CLR 420, 426-7 (Dixon CJ and Fullagar J) (‘Fitzgerald’); Harker-Mortlock v Commonwealth Bank of Australia [2019] NSWCA 56, [42]-[46] (‘Harker-Mortlock’).
[14]Relying upon Harker-Mortlock (n 13) [43].
I generally accept as correct these principles of contractual construction. As to the last two principles, words may be supplied, omitted or corrected as a matter of construction where a reading of the document objectively produces an absurdity or inconsistency.[15] In Fitzgerald, Dixon CJ and Fullagar J stated that:[16]
Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.
[15]Fitzgerald (n 13) 426-7 (Dixon CJ and Fullagar J), 437-8 (McTiernan, Webb and Taylor JJ).
[16]Ibid 426.
Further, McTiernan, Webb and Taylor JJ stated that:[17]
It is trite law that an instrument must be construed as a whole. Indeed it is the only method by which inconsistencies of expression may be reconciled and it is in this natural and common sense approach to problems of construction that justification is to be found for the rejection of repugnant words, the transposition of words and the supplying of omitted words.
[17]Fitzgerald (n 13) 437.
As noted above, the plaintiff submitted that it may be presumed from the terms of the Schedule and the purpose of the Trust expressed in the preamble, and implicit in its name (the ‘Bowen Family Trust’), that what was intended was that Mr and Mrs Bowen and their children were to be Primary Beneficiaries.
I do not accept that submission that it was the presumed intention that Mr and Mrs Bowen were to be Primary Beneficiaries. First, I accept that the name suggests that the Trust was for the benefit of the Bowen Family. However that fact alone does not assist in identifying who the Primary Beneficiaries were to be. Second, the preamble or recital does not identify the names of persons who were to be Primary Beneficiaries. Rather as set out above, it provides that the settlor was ‘desirous of making provision for the Primary Beneficiary, Primary Beneficiaries and General Beneficiaries hereinafter described ...’ That required consideration of the terms of the Trust and in particular the definition of those terms in cl 1.1 and the Schedule.
Third, I accept that the words in the Schedule describing the Primary Beneficiaries are clear. However, the terms ‘Primary Beneficiary’ and ‘Primary Beneficiaries’ are defined in cl 1.1. The words used in cl 1.1 and the description of Primary Beneficiary in the Schedule when read together are capable of an objective meaning: namely it is only the children of Mr Bowen and Mrs Bowen and the children of those who are Primary Beneficiaries under the Trust Deed. In my view, there is nothing absurd about this construction. It is not uncommon for a parent or parents to set up a family trust for the benefit of the children and grandchildren of one of both of them. Nor do I consider that this construction is inconsistent with any other part of the Trust Deed.
In these circumstances, I can see no presumed intention contrary to that objective construction which is the basis of the absurdity or inconsistency of the kind contended for by the plaintiff. If any such absurdity or inconsistency arises, it only arises by virtue of the subjective intention of Mr Bowen as a director of the plaintiff and Mr Tiernan as settlor in creating the Trust. It is therefore not appropriate in the circumstances to construe the Trust other than in accordance with its natural and ordinary meaning of the words used.
RECTIFICATION
The Submissions
As noted above, in the alternative, the plaintiff seeks rectification of the Trust Deed consistent with the common intention of the settlor and the plaintiff that Mr and Mrs Bowen were to be Primary Beneficiaries.
As to the legal principles, the plaintiff submitted that:
(1) Where, by mistake, a written instrument (including a unilateral trust deed) does not accord with the agreement or continuing intention of the party or parties who executed it, a Court of Equity has power to order that the instrument be rectified so as to make it accord with the true intention.[18]
[18]Relying upon among other cases Simic v NSW Land and Housing Corporation (2016) 91 ALJR 108, [103] (Gaegler, Nettle and Gordon JJ) (‘Simic’); Franknelly Nominees Pty Ltd v Abrugiato [2013] WASCA 285, [177] (Buss JA) (‘Franknelly’).
(2) Rectification is not barred because the document was read before it was executed.[19] So Courts have in some cases ordered rectification notwithstanding that the parties had obviously intended to execute the documents settled by their solicitors.[20]
[19]Relying upon among other cases Ryledar Pty Ltd v Euphoric Pty Ltd (2009) 69 NSWLR 603, 629-33 [130]-[131] (Tobias JA, Mason P and Campbell JA agreeing) (‘Ryledar’).
[20]Relying upon Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526, [38] (‘Club Cape Schanck’).
(3) The mistakes which may be corrected by rectification include mistakes as to the effect (and not merely the form) of an instrument.[21] 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.[22]
[21]Relying upon Franknelly (n 18) [178] and cases cited therein.
[22]Ibid [179] and cases cited therein.
(4) A person who seeks rectification must establish, by convincing proof,[23] that an instrument does not embody the common continuing intention of the party or parties at the time when the instrument was executed[24] and what the common intention was.[25]
(5) 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.[26]
(6) 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.[27]
[23]Relying upon among other cases Pukallus v Cameron (1982) 180 CLR 447, 456 (Brennan J); Franknelly (n 18) [181].
[24]Relying upon among other cases Club Cape Schanck (n 20) [14]; Franknelly (n 18) [180]-[181].
[25]Relying upon among other cases Slee v Warke (1949) 86 CLR 271, 281 (Rich, Dixon and Williams JJ); Club Cape Schanck (n 20) [14].
[26]Relying upon among other cases Simic (n 18) [103].
[27]Relying upon Spry, Equitable Remedies (6th ed, 2001) 615.
The defendant accepted these principles as correct. The defendant further submitted that the common intention may be confirmed by later manifestations of intention.[28]
[28]Relying upon Public Trustee v Smith [2008] NSWSC 397; Benaroon v Larmar [2020] QCA 62.
The plaintiff submitted that, in this case, the evidence provided clear and convincing proof that the intention, at the time of execution of the deed, was that Mr Bowen and Mrs Bowen and their children would be Primary Beneficiaries of the Trust. The plaintiff relied in particular on the evidence of Mr Tiernan and Mr Bowen set out above to establish that intention.
Further it submitted that, if the plaintiff’s construction of the Trust Deed is not accepted, cl 1.1 of the Trust Deed and the Schedule read together have the effect that each of Mr and Mrs Bowen is not a Primary Beneficiary, and therefore that the Trust Deed does not accord with the intention of the plaintiff or the settlor at the time the Trust Deed was executed.
The defendant agreed with that submission noting that Mr and Mrs Bowen and their children were expressly named as Primary Beneficiaries in the Schedule to the Trust Deed and this is consistent with Mr Bowen’s stated intention in establishing the Trust. Counsel for the defendant submitted that the drafting of cl 1.1 had the effect of excluding each of them as a Primary Beneficiary. He did not oppose an order for rectification in the form sought by the plaintiff.
Analysis
On the evidence before me, I am satisfied that the plaintiff has established clear and convincing proof that, at the time of execution of the Trust Deed, the plaintiff as trustee and Mr Tiernan as settlor intended that Mr and Mrs Bowen and their then present and future children would be Primary Beneficiaries of the Trust (the ‘actual common intention’). In this regard, I consider that Mr Bowen was the controlling mind of the plaintiff for the purpose of determining the actual common intention of the plaintiff.[29]
[29]Tesco Supermarkets Ltd v Nattrass [1972] AC 153, 170.
In reaching this conclusion I have considered carefully the evidence relied upon, in particular the evidence of Mr Bowen and Mr Tiernan. I am conscious that the affidavits are not entirely consistent in their language. As set out above, Mr Bowen deposed that Mr Tiernan advised him to include ‘myself, my wife at the time ... and our children’ to be the beneficiaries of the Trust and that he agreed with that advice and instructed him to establish such a trust. Mr Bowen later deposed that he always intended that the family wealth would be distributed though the Trust to him, his wife and family. Further, Mr Tiernan deposed that he advised that Mr Bowen should include as beneficiaries ‘himself, his wife … and their future children’.
However, viewing the evidence as a whole, I have concluded that there is clear evidence that Mr and Mrs Bowen and their then present and future children were to be the Primary Beneficiaries ie the actual common intention. This is in light of the description of the Primary Beneficiaries in the Schedule as:
Robert Evan Bowen and Venetia Kitson Bowen and the children of Robert Evan Bowen and Venetia Kitson Bowen.
In this context I note that the evidence of Mrs Bowen and the Bowen children focused on Mr Bowen, and not Mrs Bowen, being included a Primary Beneficiary. I understand that the reason for that, given that Mrs Bowen is a General Beneficiary while Mr Bowen is not for the reasons set out in [19] above. However, that does not detract from the actual common intention of the plaintiff and the settlor at the time the Trust Deed was executed.
As a result it is necessary to determine whether the Trust Deed can be remedied by the doctrine of rectification to reflect the actual common intention.
I have considered the plaintiff’s submissions regarding the types of mistake which may be rectified. The relevant principles are summarised in Franknelly:[30]
The object of the equitable doctrine of rectification is to reform an instrument in which the parties have mistakenly expressed their agreement or common continuing intention. Equity may and does rectify instruments. It does not rectify contracts or transactions.
Rectification corrects a disconformity between the agreement or common continuing intention of the parties, on the one hand, and the instrument, on the other, so that the instrument contains the provisions which the parties actually intended it to contain.
The mistakes which may be corrected by rectification include a mistake as to the effect (and not merely the form) of an instrument.
It must be emphasised, however, that rectification will not be available where the parties are merely mistaken as to the consequences of, or the advantages to be gained by, a contract or transaction recorded in an instrument. That is, 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.
Further, as Mahoney A-P observed in Carlenka, rectification will not be available to correct 'consequences which the parties did not have in their mind when the deed was executed even if, had they thought of them, they would have intended them' (332). Similarly, in Tucker v Bennett (1887) 38 Ch D 1, Lopes LJ said the court must look at the intention of the parties ‘at the time when the deed was executed, and not what would have been their intent if, when they executed it, the result of what they did had been present to their minds’ (16).
[30]Franknelly (n 18) [176]-[180] (citations omitted).
In light of these authorities and for the reasons below, I concluded that rectification should be ordered in this case.
First, I am satisfied that the effect of the Trust Deed does not reflect the actual common intention at the time of creating the Trust.
Second, I am satisfied that the inconsistency between the actual common intention and the terms of the Trust Deed arises by virtue of the mistaken inclusion of the words ‘children of the’ in cl. 1.1. As noted above, the actual common intention is reflected in the description of the Primary Beneficiaries in the Schedule to the Trust Deed.
Third, this is not a case where the parties did not turn their mind to whether Mr and Mrs Bowen and their children were to be Primary Beneficiaries. Rather, on the evidence before me the actual common intention of the parties to the Trust was for the assets and income of the Trust to be distributed to Mr and Mrs Bowen and their children as Primary Beneficiaries. This is in a context where the income generated by Mr Bowen through his business interests would be paid into the Trust.
It is notable that the plaintiff as trustee has over the years distributed income of the Trust as though Mr Bowen and Mrs Bowen are in fact Primary Beneficiaries. In my view, while this does not evidence the actual common intention at the time the Trust Deed was executed, it is evidence that the parties acted on the basis of the actual common intention after that time.
Fourth, I am satisfied that the form of rectification sought to cl 1.1 by removing the words ‘children of the’ is clear and precise in its terms and truly reflects the actual common intention.
I am conscious that the effect of granting rectification is to exclude from the class of Primary Beneficiaries the unborn grandchildren of Mr and Mrs Bowen. That has flow on effects given that certain relatives of a Primary Beneficiary are also General Beneficiaries as set out in cl 1.2 above. However, there was no suggestion in the material of prejudice caused by any delay in seeking rectification at this time. In these circumstances, notwithstanding this consequence, I can see no bar to the claim for rectification.
CONCLUSION
As a result, I have concluded that the plaintiff is entitled to rectification of the Trust Deed. Consistent with the form of order submitted by the parties in the event I was satisfied rectification should be granted in this case, I shall order that.
(1) The Trust Deed be rectified by deleting in cl 1.1 the words ‘children of the’ so that cl 1.1 reads:
1.1 The “Primary Beneficiary” and the “Primary Beneficiaries” means the persons referred to in the Schedule hereto.
(2) The plaintiff and the defendant be indemnified for their costs of the proceeding on an indemnity basis from the assets of the Bowen Family Trust.
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