Trust deeds are important because they contain the terms for managing the trust and administering trust property. Without a trust deed, a trust has no rules to guide its operation.
The original trust deeds are lost. If so, “clear and convincing evidence” of its existence and content can “save the day”. The rule is:
“where the original writing is not produced and secondary evidence is relied upon, there must be clear and convincing evidence not only of the existence, but also of the relevant contents of the original document, in the same order as the evidence required to establish a right to rectification of a written document » Maks v. Maks (1986) 6 NSWLR 34, 36 (McLelland J)
Examples of “Clear and Convincing Evidence” of the Existence and Contents of a Lost Trust Deed
Barp Nominees Pty Limited [2016] NSWSC 990 (Pembroke J) – proof as to existence was: “actual personal observation and recollection of the contents of the lost document” of a recipient; and as to the content “The fact that there was a mirror deed of trust for the other side of the family” which contained the terms believed to be in the lost deed.
Application by Brailey Holdings Pty Limited ACN 001 190 441 [2018] NSWSC 1493 (Kunc J) – the evidence was that 3 or 4 identical trust deeds were established in 1974, one for each child. An original has been lost. Extensive research has been done. Proof of existence was a deed of appointment of a new trustee in 1980 and a deed of amendment in 1984; and as to content, the trust with the lost deed was administered in the same way as other trusts had been administered since at least 1984.
The application for M & L Richardson Pty Limited [2021] NSWSC 105 (Kunc J) – proof of the existence of an original trust deed was proof of the provider of the trust deed, the opening of a bank account in the name of the trust (banks require a copy of the deed of trust to open accounts) and many are looking for the lost deed; and as to content, continued administration of the trust since its inception in 2009 in accordance with an unsigned copy. Kunc J noted that the existence of a signed deed (at a given time) was necessary to satisfy the Fraud Status.
These decisions were made by the Supreme Court of New South Wales following a request by the trustee for a judicial opinion under section 63 of the Trustees Act 1925 (NSW). This procedure protects the trustee.
What if “clear and convincing evidence” is not provided of the existence and contents of a lost trust deed?
The decision to Mantovani v Vanta Pty Ltd (No. 2) [2021] CSV 771 – The Supreme Court of Victoria (McMillan J) illustrates what happens in this situation.
Facts
In 1976 the Mantovani Family Trust was established, with Vanta Pty Ltd as trustee. It was a discretionary trust that named all immediate family members as beneficiaries.
Currently, two of the principal’s four children (Teresa) were directors of Vanta and therefore controlled the Trust.
Over the years, various properties have been transferred by Teresa to the Trust. The transferred property consisted of land later subdivided into four residential units, and land later subdivided into six commercial fronted properties, located in Cobram (a town in Victoria). The Trust retained ownership of the properties, received rental income and made distributions.
In 2015, Teresa passed away. In her will, she left the family home to Giovanni and purported to leave the residential and commercial properties (which had previously passed into the trust) to her four children in equal shares. His residual estate was left to his four children in equal shares.
The lawsuit was brought by Giovanni against Vanta and his three siblings. He was upset that the family home, in which he had lived all his life, was being offered for sale by the executors to pay the debts of the estate. He was also upset that no distributions had been made to him under the Family Trust, even though his two brothers, who were directors of Vanta, had distributed $120,000 to each other over the past ten years. To add insult to injury, both brothers had refused Giovanni’s requests to provide the trust deed and financial accounts for the trust.
The procedure
What began as a request for production of trust documents (the trust deed, financial documents and accounts), morphed into a request for declarations that: the trust had failed for uncertainty when the deed of trust has not been produced (because it has been lost), for the acquisition of the assets of the trust by means of a resultant trust for the estate of Teresa Mantovani and for an account of all monies received and disbursed by Vanta (as trustee of the trust).
The Court dealt with the application by asking six distinct questions:
1. Has the trust deed been lost?
The Court found that reasonable searches and inquiries were made by the family of their own records, as well as financial institutions, government agencies, accountants, bookkeepers and attorneys. The Court was satisfied that the trust deed had been lost.
2. Can secondary evidence be invoked to prove the existence and content of the act?
The Court was satisfied that the deed existed (at some time), referring to the appendix to the deed (which contained details of settlor, trustee, principal, beneficiaries) which was in evidence, the financial records and tax returns of the Mantovani Family Trust for the years 2012-2020, and to a lesser extent Teresa’s will.
But the Court was not satisfied with the contents: “there is no record of the terms of the deed and no proof of its contents has been given by any person who saw the deed” – appendix n was not sufficient because it did not contain the terms; and added, “to make a statement that Vanta is justified in continuing to administer the trust… [is] ‘mere guess’.
3. Can the presumption of regularity be invoked to save the Family Trust?
The Court stated that the presumption of regularity applies only to formal requirements and due process and cannot be invoked to overcome lack of evidence as to the substance of the act – its content, terms and its effects.
4. Does the family trust fail for uncertainty?
The Court stated that: “Given the preponderance of a fiduciary’s duty to ascertain and strictly observe the terms of a trust… [in the absence of a Deed] there is no way that the family trust can be administered in accordance with the intentions of those who established it”.
“Due to the loss of the deed and the lack of clear and convincing evidence of its contents that is available from secondary evidence, the family trust failed for uncertainty.”
5. Should Vanta be declared to hold the property in trust on the resulting trust for Teresa’s estate?
The Court said that “following the failure of the Family Trust [for uncertainty], Vanta holds the property in trust subject to a resulting trust in favor of Teresa’s estate”. This was consistent with Teresa transferring property to the Trust which was property of the Trust.
6. Should an order be made to take into account and pay the sums deemed due to Teresa’s estate?
The Court said: “The Court is satisfied that an account order is necessary to determine the completeness of the financial transactions undertaken by Vanta in its capacity as trustee and to determine the amounts due to Teresa’s estate.” “For reasons of prescription, the accounts can only be ordered for the period beginning six years before the introduction of the action”.
For a full understanding of the procedure, refer to the earlier procedural decision: Mantovani v Vanta Pty Ltd [2020] CSV 736 (where the trustee was ordered to produce trust documents) and the subsequent decision on costs: Mantovani v Vanta Pty Ltd & Ors (No 3) [2022] CSV 357 (where the indemnity costs were awarded against the Vanta directors personally, with no indemnity from the assets of the trust).
comments
The Mantovani decision illustrates what can happen if the original or the copy of the trust deed of a family trust cannot be located, i.e. the trust fails due to uncertainty.
In Mantovani, the loss of the trust deed meant that properties that had been treated as family trust assets became assets that were part of their mother’s estate.
If a trust deed is lost, the trustee is well advised to obtain a court opinion that they can rely on an unsigned copy or other document for content. Otherwise, the trustee faces the prospect that a beneficiary may seek an order that the trust has failed.
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