Mistakes happen in all walks of life. Some are easy to remedy, others, not so much. What happens when a mistake occurs in a deed of trust?
Some mistakes can be corrected through the trustee’s power to vary; if the deed provides for that. Where the trustees do not have a power of variation, a variation can be made if all beneficiaries are of age and consent. The Trustee Act provides for certain variations that are in the best interests of the beneficiaries. The High Court also has the jurisdiction to make certain amendments that are in the best interests of the beneficiaries.
However, if the mistake is fundamental to a trust and to the identification of the trust’s beneficiaries, how is that to be remedied? For mistakes that equate to “mistaken identity” variation as such may not an option as any variation must ultimately be for the benefit of the beneficiaries.
Consider for example, where the deed of trust provides that the beneficiaries are the settlor’s children and grandchildren, but the settlor was the “true” settlor’s lawyer or accountant so that the beneficiaries are linked to the wrong person. Variation can’t assist as the object of the variation isn’t to benefit the beneficiaries but to remove them. This was the case in a recent decision regarding the Hindle Family Trust where the solicitor who drafted the deed was named as the settlor and a number of beneficiaries were defined by reference to the named settlor. This is an unnecessary but common enough practice. The mistake was identified following the solicitor’s death. On application to it by the trustees, the court was satisfied that the deed did not represent the “true” settlor’s intention and ordered rectification of the trust deed. The court also made reference to “the well-known trap that exists when precedent documents are used of failing to carefully review all the provisions of the document to ensure that those which were appropriate for the original purpose for which the document was used do not require amendment for the current purpose.”
This case serves to highlight the risks involved with precedent deeds and the importance of reviewing each new deed carefully to ensure that the deed meets the client’s expectations and wishes. The case also highlights the importance of any trustee ensuring that the trustee is familiar with the terms of the deed of trust not just be expectation but by actually reading the deed of trust. Had that occurred here the error would have been detected much earlier and possibly in time to prevent the expenses that flowed.
Although rectification was available to correct the mistake in the case in hand, it is important to appreciate rectification is not a self-help remedy and an application to the High Court is necessary. This is because when a trust is settled certain rights and obligations are created and any variation or amendment of these must either be pursuant to the correct power or by order of the court. If not, the trustees could be vulnerable to a subsequent claim from disaffected beneficiaries.
The general principles that apply to rectification are summarised in Green Growth No 2 Limited v Queen Elizabeth The Second National Trust:
- the parties must have had a common continuing intention in respect of the matter to be rectified
- the continuing intention must be objectively apparent
- the intention must continue up to the time of the execution of the agreement sought to be rectified, and
- it must be demonstrated that, by mistake, the agreement does not reflect the continuing intention.
Note that the Court of Appeal’s decision not to set aside the order for rectification was overturned by the Supreme Court, but based on the facts of the case rather than the principles as expressed in the Court of Appeal judgment.
It is also important to consider whether a variation or rectification can have consequences beyond attending to the identified matter at hand. See Variation of Trust and Rectification and Variation.
- In the matter of an Application by Patrick and Doris Mary Hindle for an order for rectification of the Hindle Family Trust Deed  NZHC 903
- Sanders v CIR (1982) 5 NZTC 61,380
- Re Butlin’s Settlement Trust  2 ALL ER 483
- Chapman v Chapman  1 All ER 798
- Trustee Act 1956, s 64, 64A
- Green Growth No 2 Limited v Queen Elizabeth The Second National Trust  NZCA 308
- Green Growth No 2 Limited v Queen Elizabeth The Second National Trust  NZSC 75