Lost, destroyed or missing trust deeds can sometimes lead to tears, misery and heart attacks. But is the situation as dire as it seems if a document, crucial to organising your financial affairs, disappears?
Maybe it is the advent of trusts as a useful financial planning structure, or the rise of the self‑managed super fund (“SMSF”) (read our previous article on self-managed super funds here), but in recent times, well recent for the law, there have been a number of cases which are resurrecting a seemingly forgotten principle of law, the presumption of regularity.
The presumption of regularity is that deeds and other documents will be presumed to have been validly executed and made, unless there is some contrary evidence. The cases below illustrate the point, and highlight that the presumption is only applied in very limited circumstances, often where there is a substantial lack of evidence.
Sutherland v Woods[1]
In Sutherland v Woods there was a question as to whether a SMSF had been validly established. The trust deed could not be located, and because there was no deed, Woods claimed that it was not a valid SMSF.
Sutherland sought to rely upon the presumption of regularity and contended that despite the absence of the deed, the fund was valid. The subsequent conduct of the parties, including their bank and the ATO, led to the conclusion that the SMSF must have been correctly established, even if the deed was now missing.
Importantly, the parties did all they could to locate a signed copy of the original deed, contacting Westpac, the ATO and titles office to see if any of those entities held a signed copy. These enquiries were unsuccessful, and the parties were forced to rely upon an unsigned copy of the alleged deed.
The court ultimately agreed with Sutherland, and held that although a true signed copy of the deed was unavailable, that did not prevent the inference that the trust had been validly created.
The missing deed would have been conclusive evidence that the SMSF was established correctly. In absence of the deed, Sutherland was instead required to prove the validity of the SMSF through other means, such as subsequent dealings.
It was apparent that through the actions of the parties, and third parties, relying upon the existence of the deed, the trust had always been intended as a superannuation fund and had been validly created as such.
The absence of the missing document did not invalidate the fund, and indeed the evidence in the circumstances led to the presumption that the establishing deed must have existed at some point.
Re Thomson[2]
In Re Thomson, the deed establishing the trust was not an issue. Instead, there were two subsequent amending deeds, one was missing and the other unsigned.
The first deed, which was missing entirely, purported to remove two of the original trustees. The second deed, which was unsigned, referred to the first deed and amended the trust so that if both of the remaining trustees were to pass away, the trust would vest in the estate of whomever survived the longest.
The dispute arose around the validity of the two amending deeds. If they were not valid, then the two trustees who were allegedly removed would be entitled to the property of the trust. If both were valid, then the trust would vest in the estate of Thomson.
Such matters around the validity of documents when it comes to the administration of an estate are not uncommon, and is the context in which the presumption is commonly applied.
In determining the validity of the irregular deeds, the court again looked at similar factors as in Sutherland.
In particular, the court relied on the fact that since the removal of the trustees, only the two remaining trustees had been signing off on the trust’s financial reports, indicating that the deed existed, and the parties had been acting as if it were the true state of affairs.
The court found that the two irregular deeds could be presumed to be regular because the evidence indicated that was probably the correct and true situation. The executor was therefore entitled to include the trust property in the deceased’s estate.
So what is the presumption?
So now that we have reviewed a couple of examples of the presumption, when should you be considering relying upon it?
The presumption will only apply in limited circumstances, it should not be considered a cure-all for any trust problems you have.
The courts have held that before applying the presumption:
- a considerable amount of time must have passed since the event happened;
- there is no other way to prove the existence or validity of the missing deed;
- there is some other extrinsic evidence indicating the deed, or missing instrument was valid and people have since acted as if it were valid; and
- the presumption must only be applied to a procedural or formal detail.
Point 3 above is clearly identified in the two cases. The evidence from the bank, the ATO, and financial reports all indicated the legitimacy of the actions being undertaken, even where the deed was not located.
The presumption should not be thought of as applying in all situations, indeed, its limited application throughout the last 50 years suggests it should only be thought of as a last resort.
In many circumstances, simply claiming the deed is lost, without exhausting all possibilities will not be enough.
Before relying on the presumption, consideration should be given to some of the following alternatives:
- preparing a deed of rectification;
- relying on the trustee powers in the Trusts Act;
- for a SMSF, where practicable, rolling the assets over to another SMSF which does not have any issues with documentation; and
- last but certainly not least, no effort should be spared in locating the original deed.
Of course, these options are not always available, some may rely on the original trustees still being available, or simply be inapplicable in the circumstances.
Lost or irregular trust documents often have circumstances unique to each case. For that reason, when irregularities are detected, efforts should immediately be made to correct them.
In most cases involving the presumption, it is not raised until there is a crisis, for example the breakdown of a marriage or the administration of a deceased estate. By taking proactive steps, most of these situations, and possibly expensive litigation, can be avoided.
The experienced team at Miller Harris can help you, or your clients in dealing with lost or irregular deeds. Many situations will require a bespoke solution, and our experience across many areas of the law enable us to come up with the right solution to your problem.
Should you have any questions or enquiries, please do not hesitate to contact Ashley Jan on 07 4036 9700, or ashleyjan@millerharris.com.au.
[1] Sutherland v Woods [2011] NSWSC 13 ( http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2011/13.html ).
[2] Re Thomson [2015] VSC 370. ( http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/vic/VSC/2015/370.html )