The recent decision of Sutton v NRS(J) Pty Ltd  NSWSC 826 highlights the importance of having original executed copies of all constituent trust documents. It has tremendous relevance for SMSFs.
The facts of the case were as follows:
- In 17 August 1972, a discretionary trust (‘Trust’) was established for the benefit of the family of the plaintiff, Mr Neil Raymond Sutton.
- The Trust was established with a settled sum of $100 and then was essentially left dormant for a period of over 30 years. However, from around 2007 onwards Mr Sutton decided to activate the Trust. Accordingly, a portfolio of properties and businesses were subsequently settled on the Trust.
- Mr Sutton and his advisors had a photocopy of the signed original deed for the Trust and acted on the basis that the Trust was validly constituted and governed by the terms of the photocopied deed.
- The original signed deed for the Trust could not be located.
- Several of the banks used by the Trust wished to sight the establishment deed for the Trust to determine that the Trust’s constituent documents were in order as part of their “know your customer” policy.
- Due to the inability of the trustees of the Trust to produce the original deed, one bank account used by the Trust was frozen until the deed could be produced.
- In seeking to obtain an original copy of the deed, Mr Sutton solicitor made enquiries to Clayton Utz (as the relevant law firm who had acted both for Mr Sutton and his father at the time the Trust was established). As a result of these inquiries, a packet of documents was discovered containing an original will of Mr Sutton prepared for him by Clayton Utz and signed on 17 August 1972, and a separate photocopy of the Trust deed. The photocopy was the same as the photocopy already in Mr Sutton’s possession.
- Mr Sutton sought a declaration from the Court as follows:
An order that the photocopy of a Deed made the 23rd day of October 1972 BETWEEN Frederick Walter Sutton (the Settlor) of the one part AND Laurie Frederick Sutton, David Bruce Sutton and Neil Raymond Sutton of the other part identified in the Affidavit of Neil Raymond Sutton filed in these proceedings is a true copy of the original Deed made the 23rd day of October 1972 BETWEEN Frederick Walter Sutton (the Settlor) of the one part AND Laurie Frederick Sutton, David Bruce Sutton and Neil Raymond Sutton of the other part identified in the Affidavit of Neil Raymond Sutton filed in these proceedings.
Counsel for Mr Sutton argued that a ‘presumption of regularity’ should apply in the circumstances — see, eg, Re Thomson  VSC 370 where the presumption was applied in relation to an unsigned SMSF deed.
In Harris v Knight (1890) 15 PD 170, 179–80, Lindley LJ described this presumption as follows:
The maxim, ‘Omnia praesumuntur rite esse acta,’ is an expression, in a short form, of a reasonable probability, and of the propriety in point of law of acting on such probability. The maxim expresses an inference which may reasonably be drawn when an intention to do some formal act is established; when the evidence is consistent with that intention having been carried in effect in a proper way; but when the actual observance of all due formalities can only be inferred as a matter of probability. The maxim is not wanted where such observance is proved, nor has it any place where such observance is disproved. The maxim only comes into operation where there is no proof one way or the other; but where it is more probable that what was intended to be done was done as it ought to have been done to render it valid; rather than that it was done in some other manner which would defeat the intention proved to exist, and would render what is proved to have been done of no effect.
However, the Court considered it was unnecessary to rely on this presumption. Parker J noted (–):
In Re Thomson the missing trust deed was evidenced only by an unsigned copy, but in the present case there is no particular need to prove by inference that any formality has been complied with. The photocopy Trust Deed is signed and the evidence establishes directly that the parties concerned have always acted on the basis that it sets out the terms of the Presumed Trust.
In my opinion, the evidence makes it overwhelmingly likely that the photocopy Trust Deed is indeed a copy of an original which now cannot be found. This conclusion is supported in particular, by the recent discovery of an identical copy of the Trust Deed in the records of Clayton Utz dated from 1972.
In these circumstances, the Court should assist those responsible for the administration of the presumed trust by ensuring that they can continue to administer it as if the photocopied Trust Deed were the trust’s constituting document.
The question for the Court was how to achieve the practical relief sought by Mr Sutton. The Court considered that there were two difficulties in providing declaratory relief in the form sought by Mr Sutton as follows:
- The Court noted that declarations are used to determine formally a legal state of affairs. They are not to determine a mere matter of fact.
- The Court considered that it was not appropriate to make a declaration which may affect the status of property (ie, the property of the Trust) unless all interested parties have had an opportunity to be heard.
Thus, as an alternative to the declaratory relief sought by Mr Sutton, the Court exercised its advice power under s 63 of the Trustee Act 1925 (NSW), to provide advice as follows:
- The trustees of the trust settled by Frederick Walter Sutton by Deed of Trust dated 23 October 1972 are justified in administering the trust on the basis that the document annexed to this order and marked “A” is a true copy of that Deed.
- The costs of all parties to these proceedings be paid out of the assets of the trust.
This advice meant the trustees of the Trust were effectively entitled to treat the photocopy of the deed possessed by Mr Sutton as the Trust’s constituting document, subject to the original ever turning up.
This decision of the New South Wales Supreme Court reinforces the importance of having original executed copies of all constituent trust documents, as judicial intervention was required in this case to address third-party bank concerns and a frozen bank account.
The case also highlights that judicial advice under the trustee legislation in the relevant jurisdiction (there are equivalents to s 63 of Trustee Act 1925 (NSW) in other jurisdictions) may be an appropriate alternative to seeking declaratory relief, eg, where the uncertainty arising is more a question of fact rather than a question law, and where all interested parties are not able to be included in the proceedings.
As SMSFs are merely a type of trust, the case is also relevant for SMSFs. For example, an SMSF trustee could seek judicial advice under the relevant trustee legislation in relation to reliance on a photocopy or scan of a signed SMSF deed where the original could not be located, particularly where multiple photocopies or scans exist, as they did in Sutton, such that it was ‘overwhelmingly likely’ that the copy relied upon is a true copy of the original.
For more information of managing lost SMSF, please see https://www.dbalawyers.com.au/smsf-compliance/honey-lost-deed/
DBA Lawyers also offers an SMSF deed history review service with the objective of seeing if there are any issues in a fund’s document trail that require remedial work. This remedial work is aimed at ensuring the SMSF’s deed history is as resistant to outside scrutiny or challenge as possible. Remedying any issues in a timely manner is often far more cost and time effective than being exposed to legal challenge, ATO scrutiny, or other risks and uncertainty at a later date
Please see here for more information or to place an order: https://www.dbalawyers.com.au/smsf-deed-history-review/
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.
Note: DBA Network Pty Ltd hold a range of SMSF CPD training online. The next live SMSF Online Update webinar is being presented on 24 July 2020. For more details or to register, visit www.dbanetwork.com.au or call Natasha on 03 9092 9400.
21 July 2020