In our previous article, we highlighted the issues that can arise where a family trust deed has been lost and the importance of retaining a complete copy of the trust deed.
Background: Recent cases in which a trust deed has been lost
The Court’s view of the process that needs to be followed when a trust deed has been lost has been further considered in two recent New South Wales cases – Application of DEK Technologies Pty Ltd as trustee for DEK Technologies Unit Trust & Ors [2023] NSWSC 544 (“DEK Technologies case”) and BAGI Pty Ltd trading as atf Nick Ristevski Family Trust v Marka Ristevski [2023] NSWSC 567 (“BAGI case”).
These cases offer greater hope to trustees of the Court taking a more pragmatic approach where a deed has been lost.
DEK Technologies Case
The case was brought before the New South Wales Supreme Court by the trustees1 of four trusts who sought judicial advice that they were justified in administering the trusts on particular terms, in circumstances where the trust deeds could not be found.
Although the trust deeds had been lost, at the time the trusts were established the accountant (Mr Scopelliti) prepared a detailed letter of advice outlining the establishment of the unit trust with the family trusts as unitholders and setting out various other details of the trusts, such as the discretionary beneficiaries. A corporate diagram was also prepared.
The plaintiffs could not recall receiving a copy of the unit trust deed or signing it and could not recall signing the establishment documents for the respective family trusts.
Mr Scopelliti gave evidence that in establishing trusts for his clients, he always had the trust deeds prepared by ASIS Services Pty Ltd, and that he made no changes to the deeds provided by the company. Further evidence was given by a former employee of ASIS Services Pty Ltd that they had a number of template trust deeds that included all relevant terms and that their order forms contained specific details concerning the trust name, establishment date, settlement sum, applicable law and details of the settlor, trustee and beneficiaries, which was stored on their database.
In making its decision, the Court referred to the case of Vanta Pty Ltd v Mantovani [2023] VSCA 532 and adopted the view that the relevant question to the Court is whether it is satisfied, on the balance of probabilities, that the trust deeds were executed and contained the terms proposed, which may be established by secondary evidence.
In a pleasing result for the plaintiffs, the Court held that the trustees were justified in managing and administering the trusts according to the terms outlined in the letter of Mr Scopelliti, the template deeds and information on the order forms.
The BAGI Case
In this case, brought before the New South Wales Supreme Court by the trustee of a family trust, an order was sought that the trustee was justified in treating a replacement trust deed as the operative deed for the trust, and to remedy an error in the rectified deed.
The original trust deed for the trust was executed on 1 July 1989 (“the 1989 Deed”) of which the only two parties were the settlor and the trustee. The trustee believed that the original deed was held at a bank branch when it was provided to them as part of loan documentation requirements. However, in 2010 the trustee sought the original from the bank but they could not locate the original or a copy. The trustee made enquiries between 2012 to 2015 as to the whereabouts of the original 1989 Deed, but it could not be located.
In 2015, the trustee sought advice to have the 1989 Deed replaced with a new trust deed, without any knowledge of the terms of the original trust deed. The replacement deed was signed on 12 February 2015 (“the 2015 Deed”) which was described as a “confirmation deed”.
In 2020, an incomplete copy of the 1989 Deed was found at the family home of the trustee. The incomplete copy showed the beneficiaries of the trust created in the 1989 Deed, which were different to the 2015 Deed. The trustee therefore wished to rectify the 2015 Deed to include the beneficiaries included under the 1989 Deed.
The Court held that the 2015 Deed could be rectified, provided it could be established that the parties to the deed had a common intention which continued up to the time of execution. The Court held that there is evidence that the common intention of the 2015 Deed was to reproduce the 1989 Deed and accordingly, the beneficiaries of the 2015 Deed can be amended to reflect the 1989 Deed.
In relation to whether the trustee could rely on the 2015 Deed as the operative deed, the Court held that the original 1989 Deed contained a broad power of alteration, modification or revocation of the trust and accordingly that power was sufficient to authorise the amendments which occurred to the trust via the 2015 deed. Therefore, the Court confirmed that the trustee was justified in acting in accordance with the 2015 Deed.
Implications of the two recent cases
Although on its face both matters are a win for the trustees, it is worthwhile noting that potential unintended consequences were not specifically addressed by the Court.
In particular, the BAGI case raises the question of a potential duty complication where a confirmation deed is adopted – being the 2015 Deed in the matter. Depending on where the trust assets are held, and in this matter they fell within the New South Wales jurisdiction, the relevant state revenue office may view the confirmation deed as a resettlement, trust acquisition or a declaration of trust (applicable in New South Wales) which would result in duty being applicable on the market value of the dutiable property of the trust.
How we can help
It is therefore important that, in particular where trusts hold dutiable property, that the trustee, their advisors and accountants know the whereabouts of the original deed, have sighted it and retain accessible copies. Should there be a need for the preparation of a deed of rectification or confirmation for any trust, then it is integral that the terms of the trust are as consistent as possible with the original trust deed.
Please contact us for more information and tailored assistance.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.
1 DEK Technologies as trustee for the DEK Technologies Unit Trust, Drini Mulla as trustee for the Mulla Trust, Kerim Tanovic as trustee for the Tanovic Trust, and Wisdomw Consultancy (Vic) Pty Ltd as trustee for the Yim Tang Family Trust.
2 See https://www.moores.com.au/news/lost-trust-deed-implications-for-family-trusts/.