Have you got time to rectify?**

Previous View posts have looked at various aspects of deeds of variation, and in particular, the critical need to 'read the deed' before implementing any variation.

Where a purported deed of variation later proves to be ineffective due to a failure to follow the provisions of the trust deed, one approach that can provide a solution is a deed of rectification and clarification.

Generally, this approach will be a valid way to address previous inconsistencies, without the need for court approval.

Critically however, any attempt to rectify or clarify historical issues with a trust deed cannot do something that is beyond what was originally contemplated by the parties involved.

One example in this regard that we reviewed recently, involved a situation where a trustee was incorrectly inserted under a deed of variation as a beneficiary, in direct conflict with another provision of the trust instrument.

On discovery of the conflict some years after the deed of variation, it was clear that the only way to rectify the error would be to change the trustee with retrospective effect to a new entity. The deed of rectification approach was unavailable as the deed could not ignore the clear intention of the parties, which at the time was that the trustee should remain in its role and a rectification workaround would have ignored that fact.

** For the trainspotters, ‘time to rectify’ is a line from the Beatles song from 1965’s Rubber Soul ‘Think for Yourself’ listen hear (sic):

Right by your side** - Key rules for when a prenup will fail

Previous View posts have looked at various cases where a binding financial agreement (BFA) has been held to be ineffective.

The case of Hoult v Hoult (2013) 276 FLR 412 arguably provides the best summary of the key rules in this regard.

In considering whether the wife could avoid the terms of a BFA due to not having received independent advice the court confirmed -

1. the parties need only have received independent legal advice on the document before the BFA will be assumed to be valid - the utility or content of the legal advice and indeed whether it was even understood are not relevant issues in determining whether the test is met;
2. the certificate of advice issued by each lawyer will generally be sufficient evidence that advice has been given, unless the resisting party can show evidence that creates doubt about the conclusion that would otherwise be drawn from the certificate.
3. if a party can show that there is a legitimate issue as to whether independent advice has been given then the onus of proving that the advice was in fact given is effectively 'reversed' and it is the task of the party wanting to have the BFA upheld who must satisfy the court. This is because the legislation provides that a BFA is binding 'if, and only, if' the listed requirements are all proved.
4. therefore the party to a relationship wanting to rely on a BFA must establish the existence of all required matters.

Similarly, in the case of Warrick and Mia [2018] FamCA 426, a provision which stated 'the assets and personal effect (sic) which are held in both parties’ names acquired after the marriage shall be property of both parties and should be divided between the parties on a contribution basis' was held to be so unclear that it was unenforceable; making the entire agreement also void.

This was because the phrase was an operative term and it was impossible based on the way the document was drafted to determine if 'contribution' related to non-financial as well as financial aspects.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Eurythmics song ‘Right by your side’.

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King of the mountain** - Principal's or Appointor’s appointing themselves as trustees

The position according to case law is that the powers of a principal or appointor style role of a trust are fiduciary powers that must be exercised for the benefit of the beneficiaries.

Arguably the leading case in relation to the general prohibition is In re Skeats' Settlement (1889) 42 Ch D 552.

In this case it was relevantly held that:

1. the ordinary power of appointing new trustees imposes upon the person who has the power of appointment the duty of selecting honest and good persons who can be trusted with the very difficult, onerous, and often delicate duties which trustees have to perform;
2. there is a duty to select to the best of the appointor's ability the best people;
3. there is a universal rule that a person should not be a judge in their own case; in other words a person should not decide that they are the best possible person, and say that they ought to be the trustee.

Subject therefore to the trust deed of a trust, a principal or appointor cannot use their powers to appoint themselves as trustee.

As set out in previous posts many modern trust deeds contain an exception to this rule.

The general prohibition is also removed by legislation in some states.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Kate Bush song ‘King of the mountain’.

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