29/11/2012

The idea that Discretionary Trust deeds will be interpreted as to their likely meaning, rather than what they actually say, has been rejected by the High Court in a recent decision of Montevento Holdings Pty Ltd v Scaffidi (2012).

The Scaffidi family consisted of Dad, Mum and two Sons, Giuseppe and Eugenio and, since May 1977, a discretionary trust.

All four were directors of the several companies which at various times acted as corporate trustee of the trust.  Dad died in 2004 and Mum remained a director until 2006. Dad had been the original appointor of the trust and on his death Mum took over that role.  In 2006 she appointed Eugenio to be the appointor.

In February 2009 Eugenio, duly holding the role of appointor, exercised his power and appointed Montevento Holdings Pty Ltd to be the trustee of the trust.  Eugenio was the sole director and shareholder of Montevento.

His brother Giuseppe, previously a director of the trustee and now finding himself out of that role, took court proceedings to have the appointment declared invalid and or to have Montevento removed as trustee.

He relied on clause 11.03 of the trust deed which said:
"If, and so long as, any individual Appointor is a Beneficiary that individual shall not be eligible to be appointed as a Trustee".

Guiseppe argued that the phrase ‘as a Trustee’ meant effectively “in a position to exercise trustee powers” rather than specifically to the office of Trustee.  In other words, Giuseppe was saying that because Eugenio could exercise trustee powers in his role as sole shareholder/director of Montevento, he was effectively acting ‘as a trustee’ and was therefore in breach of clause 11.03.

Although he convinced two of the Court of Appeal judges; the trial judge, one Court of Appeal judge and all five High Court judges disagreed.

The High Court agreed with the trial judge when he said that the trust deed drew a clear distinction between individuals and corporations, that it recognised that a corporation may be a trustee or co-trustee of the trust and that it contained no prohibition on a company, even one controlled by a beneficiary, being a trustee.  The High Court was blunt:
"[The clause] does not bear the meaning which [Giuseppe] attributed to it." 

What does this case teach us?

1. The current High Court is interested in black letter interpretation of documents.  They will not go behind the ‘normal and natural meaning’ of the words in the document to try to decipher what the draftsman really meant.
2. Ensure your deeds are drafted clearly and precisely.
3. The current dispute between Gina Rinehart and her children will involve a similar style of judicial interpretation of their family trust deed.

To order a discretionary trust deed from us click here or if you have any questions in relation to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.