Lost deed case – Lawyer gives expert evidence on likely terms of missing trust deed

The case of Northgate Park v Floyd [2022] VSC 783 (Northgate Park) provides an interesting development in how courts may approach the issue of a lost trust deed. Northgate Park represents a less strict approach to determining the terms of a trust where a deed is lost.

Facts

Northgate Park resulted out of other litigation occurring in respect of the Floyd Family Trust (Trust) where during the trial it became evident that the establishment deed of the Trust was missing.

Accordingly the Victorian Supreme Court was to determine in Northgate Park:

• whether the existence of the Trust could be established; and
• if so, under what terms (if any could be proven) the trustee was obligated to perform its role as trustee of the Trust, or whether the Trust would instead fail for uncertainty.

The court accepted evidence that the Trust was established in 1991 and had continued to operate since that time. This 1991 establishment deed (1991 Deed) was lost.

While searches had previously occurred for the 1991 Deed it had not been found and in 2015 two further ‘replacement trust deeds’ (2015 Deeds) were executed to replace the 1991 Deed. The 2015 Deeds acknowledge that the 1991 Deed was lost and agreed on the terms and key roles of the Trust, such as the trustee and appointors.

Expert evidence

Independent expert evidence was provided by a lawyer who had extensive experience in the drafting of discretionary trust deeds. This evidence surrounded:

• the way instructions to prepare trust deeds usually came about;
• who the trust would usually benefit;
• who would usually hold the key roles of trustee and appointor; and
• the usual terms included in trust deeds from that period, including what the variation power would likely contain.

Based on this and other evidence, the court found that it had been established on the balance of probabilities who the trustee and primary beneficiaries were, who the appointor was and what the variation power would have provided.

With these conclusions made, the court could then apply these findings to determine the effectiveness of the 2015 Deeds. The court was able to find various parts of the 2015 Deeds were effective (thus properly forming the terms of the Trust) or ineffective (thus severed from the terms of the Trust). The Court provided a revised set of terms of the Trust as an annexure to the Judgement.

Conclusions

Importantly, while there was other litigation ongoing, the parties to Northgate Park appeared broadly to agree regarding the adoption of the expert evidence and ultimately the agreed terms of the Trust. This case further reiterates that the courts are willing to adopt an approach where those involved in the trust agree on how the trust will continue.

This case also illustrates that even where no document exists, a court may be willing to accept evidence as to the likely terms of a trust based on expert evidence of the usual approach to drafting at the relevant time the trust was established. This and other recent lost trust deed cases show that courts generally prefer an outcome where a trust can continue.

A trustee’s first duty is to administer the trust in accordance with the terms of the trust. Naturally, this requires that the trustee is able to read and know the terms of the terms of the trust. However, many trustees are finding that they are not able to produce all documents forming the document trail of their trust, and thus they cannot prove they are complying with this basic duty.

While other options may be open to a trustee, it is often appropriate to seek judicial guidance or a declaration as to the terms of their trust. Failure to deal with these issues can result in a trustee being removed by a court and another person appointed in their place. Thus, prudent trustees should seek to deal with these issues directly as ignoring them could cause them lose control of the trust.

DBA Lawyers continues to monitor various lost SMSF and trust deed cases to ensure that we can provide up to date and appropriate advice and assistance to our clients.

Related articles: 

• ATO checklist for trust distributions
• Is your discretionary trust still discretionary? Case law developments on trustee duties
• Discretionary trusts – variations and issues
• Lost trust deeds: Due search and secondary evidence
• Sutton v NRS(J) Pty Ltd [2020] NSWSC 826: Lessons for managing lost trust deeds

*              *            *

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).

Note: DBA Lawyers hold SMSF CPD training throughout the year. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.

By Shaun Backhaus ([email protected]), Senior Associate, and Daniel Butler ([email protected]), Director, DBA Lawyers

DBA LAWYERS

14 November 2023