Supreme Court in South Australia saves the day - pro forma documents rectified

A South Australian accountant has had a lucky experience with the Courts.  The accountant was advising on a complex asset transfer of primary production land held by three brothers.  The intention was to divide the land equally and to transfer the land to three separate discretionary trusts, one for each brother.  Three separate discretionary trusts were duly established.  In order to obtain transfer duty relief (“intergenerational transfer of primary production land”) the potential beneficiaries of the trusts had to be restricted to the “relatives” (as defined for the purposes of the relevant exempting provision) of the relevant brother.

Unfortunately, the accountant simply acquired generic pro-forma discretionary trust deeds and neither instructed the supplier of the trust deeds that they needed to satisfy the relevant restriction nor checked that the pro-forma deeds satisfied the relevant restriction.

In the absence of the relevant restriction, the transfers of land from the brothers to the three discretionary trusts would have been subject to normal transfer duty.

The accountant (and the other interested parties) sought the intervention of the Supreme Court to rectify the trust deeds of each of the three discretionary trusts.  The parties argued that trust deeds (by not including the relevant restrictive provisions) did not implement the settlor’s intention and therefore should be rectified to match the settlor’s intention.  The Office of State Revenue was joined as a party to the proceedings but declined to be involved in the proceedings.  However, the Office of State Revenue agreed to be bound by the decision of the Court.

The Court held that the accountant (who was the settlor of each discretionary trust) had in fact intended that the potential beneficiaries of each trust be restricted in order to obtain the transfer duty concession and actively researched the issue.  

The Court granted the rectification requested as the executed deeds constituting the discretionary trusts did not express the settlor’s intention.  The Court also noted that the negligence is not a bar to rectification of a document.

The lesson to be learned is that while rectification of pro-forma documents is possible the better course is to ensure that the documents achieve the intended purpose in the first place by giving express instructions.  

The case reference is Keadly Pty Ltd & Ors [2015] SASC 124.