Unfortunately, it is quite common for trust deeds to contain mistakes. While a trustee can always seek a direction from the Supreme Court that a mistake be rectified, such an option can be costly and time consuming. As a result many trustees will look to alternative solutions. One such solution is to rectify the mistake by way of a deed of rectification. 

The effectiveness of a deed of rectification was considered in the case of FTC v The Trustee for the Michael Hayes Family Trust. In this case, a fixed trust was established under which a beneficiary was described as Grawlex Pty Ltd as trustee of the MJH Superannuation Fund. The issue was that at the time the fixed trust was established Grawlex Pty Ltd was no longer the trustee of the super fund as it had been replaced by a company called Ragem Pty Ltd. The settlor and trustee of the fixed trust prepared a deed of rectification to rectify the error (ie the recording of the wrong trustee).

The Court first determined whether the error was a mistake that could be effectively remedied by the principle of construction (ie the deed could be constructed to be referring to the current trustee of the super fund). The Court found that it could because it satisfied the two requirements of, firstly, that the literal meaning of the contractual words created an absurdity and, secondly, that it is self-evident what the objective intention is taken to have been (ie that the beneficiary should have been named as Ragem Pty Ltd as trustee of the MJH Superannuation Fund). The Court’s construction was binding on the Commissioner of Taxation for the purposes of all taxation assessments since the fixed trust was established.

The Court then considered whether the deed of rectification was binding. The Court found that the deed of rectification was legally effective between the parties to the deed and perhaps between the trustee and the beneficiaries (the latter not being parties to the deed). However, the Court found that the deed of rectification was not binding on the Commissioner as it could not retrospectively change the “taxable facts”. However, while the deed of rectification was not sufficient proof, by itself, of the settlor’s subjective intention, it served a purpose, as it was accepted by the Court as evidence of the mistake made in the original trust deed.

This case is an important reminder of the difficulty of fixing mistakes and that the use of deeds of rectification must be carefully considered.

To discuss further or for more information please contact:

Phil Broderick
Principal
T +61 3 9611 0163  l M +61 419 512 801   
E: pbroderick@sladen.com.au           

Melissa Colaluca
Senior Associate
T +61 3 9611 0161
E: mcolaluca@sladen.com.au