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The case of the lost trust deed - Mantovani v Vanta Pty Ltd (No 2)

The fundamental duty of a trustee is to act strictly in accordance with the terms of the trust. The trust deed is the instrument that sets out the explicit terms of a trust arrangement, allowing a trustee to fulfil such a duty. Consequently, the trust deed may appropriately be considered the cornerstone of any valid trust.

Given the importance of the trust instrument, a lost deed will create significant issues for a trust and its trustee. Without 'clear and convincing' evidence as to the existence and contents of the original instrument, a trust cannot continue to operate in the absence of the deed.

A recent decision handed down by the Victorian Supreme Court affirmed the positive obligation on trustees to take action upon becoming aware that a trust deed has been lost to avoid being in breach of their duties and liable to account.

Melissa Ramov, Maddocks Lawyers

What were the facts?

Mantovani v Vanta Pty Ltd [1] concerned a discretionary family trust (Trust) created in 1976. It was settled by Mr Mantovani (in the role of settlor). The Trust was administered by Vanta Pty Ltd (Trustee). Mr and Mrs Mantovani controlled the Trustee until Mr Mantovani's death. Control shifted over time between Mrs Mantovani and her children.

Importantly, Mrs Mantovani transferred two properties to the Trust many years ago, for which less than market value was paid. Mrs Mantovani then died in 2015.

In the context of disagreement around trust assets and distribution of their late mother's estate, Giovanni Mantovani (son of the deceased) (Plaintiff) had been seeking access to documents, accounts and details pertaining to the Trust from the siblings controlling Vanta Pty Ltd (Defendants) since 2017,to no avail.

Following extensive searches and inquiries made to relevant advisors and authorities, the Plaintiff and the Defendants mutually agreed that the trust deed had been lost (a finding that was uncontested by the Court). The only available documents were a Schedule containing limited details relating to the Trust, and tax returns and financial records evidencing assets and liabilities of the Trust.

What were the matters in issue on which the Court made findings

The case came before the Victorian Supreme Court (Court). McMillan J found that:

  1. in the absence of the deed, the Trust failed for uncertainty. The secondary evidence (the Schedule, tax returns and financial records) was sufficient to prove the existence of the Trust, but fell short of establishing its contents.

  2. The Trust having failed, the Court had to determine whether a declaration could be made that the Trustee held the trust property on resulting trust and if so, for whom.

  3. The Trustee, after losing the deed, had made distributions totalling more than $120,000 in favour of two adult children of the Mantovani family over the past 10 years (no distributions having been made to any other individuals listed as beneficiaries in the schedule of the trust deed) so the Court had to determine whether that $120,000 should have been applied differently.

What did the Court find?

As a statement of general principle on trusts failing, the Court stated that:

  • 'where an express trust fails... or is ineffectually declared, or becomes incapable of taking effect, an automatic resulting trust arises by operation of law, such that the trustee holds the trust property on trust for the settlor or the settlor's estate.' [2]

  • 'In such circumstances, the resulting trust arises by operation of law, as an 'automatic re-direction of the failed express trust to return any remaining trust property to the provider, in recognition of the fact that the provider of the property did not intend to benefit the recipient.'[3]

  • 'The loss of a trust deed and consequential failure of a trust has been recognised as giving rise to a resulting trust.'[4]

In view of this general principle, and findings of fact in relation to the lost deed, the Court held that:

  • the trust deed was lost, with the consequence that the trust failed for uncertainty;
  • the Trustee held all trust property (and any further income arising from the Trust assets) on resulting trust for the estate of Mrs Mantovani; and

the circumstances justified that an order be made for the taking of accounts by the Trustee (particularly the $120,000 in distributions) and payment of amounts found to be owed to Teresa's estate.

Guidance on lost trust deeds

In reaching this conclusion, McMillan J provided general guidance on lost trust deeds which we have summarised into this ready reckoner.

Question: Answer following Mantovani v Vanta Pty Ltd:

When is a trust deed lost?

In order to satisfy a court that a trust deed is 'lost', the parties to a trust must have undertaken reasonable searches. A trust deed is not lost where it has merely been misplaced; it must be lost or destroyed with no scope for recovery.

When can secondary evidence be relied upon?

In certain, quite limited, circumstances, secondary evidence may be relied upon to prove both (1) the existence of the trust and (2) the contents of the lost trust deed. To be considered, such secondary evidence must provide 'clear and convincing proof' of the terms contained in the original deed.

What secondary evidence will meet the evidentiary standard?

'Clear and convincing proof' is a high evidentiary standard. Case law provides guidance on the classes of evidence that will meet the threshold, including:

  • A letter written by an accountant setting out in full the details of a trust;[5]
  • A solicitor, the author of a missing deed, who is able to attest that its terms were identical to an existing precedent; and [6]
  • A photocopy of an original deed accompanied by evidence that the trust had been administered on the terms exhibited in the copy for an extended period.[7]

By contrast, the Schedule tax returns and financial documents in Mantovani v Vanta were taken to prove the existence of the trust, but did not evidence the contents of the lost deed to a sufficient extent.

Can the presumption of regularity be relied upon to save a trust?

The presumption of regularity means that where an act is done in accordance with usual procedure, it is presumed to have been done as it normally would be, unless evidence to the contrary exists. McMillan J definitively ruled that such a presumption will only operate in cases concerning questions of formalities (proper execution of a deed) rather than substantive issues (contents of a lost deed).

Where the deeds contents cannot otherwise be proven, will a trust fail for uncertainty?

Where the contents of a trust deed cannot be ascertained, the trust generally cannot continue as the trustee will be unable to act strictly in accordance with its terms. Therefore, the trust will fail for uncertainty.

What are the relevant trustee duties in relation to a trust deed?

Trustees are duty bound to familiarise themselves with the terms of a trust and to act strictly in accordance with such terms.

A diligent trustee will approach the court to determine how to properly administer a trust when a deed is deemed to be missing. Such action would avoid a beneficiary having to seek judicial recourse at a later date.

Where a trust fails for uncertainty, will a resulting trust arise?

Where a trust fails but it is clear that the settlor intended to create such a trust, equity may step in to impose a resulting trust, preventing the trustee from receiving the benefit of the trust property.

A resulting trust may arise where a trust deed is missing (halting the operation of an express trust) but there is sufficient evidence that the trust existed and of the settlor's intention to create such an arrangement.

In whose favour does the resulting trust operate?

A resulting trust (or implied trust) arises in favour of the settlor. This is an interesting point given most modern trust deed expressly prevent distributions to a settlor (how would the case have been decided had an independent person (say a solicitor or accountant)) settled the trust.

In this case Mr Mantovani was the settlor, but Mrs Mantovani contributed most of the trust property. The Court held - on the facts - that Mrs Mantovani should be regarded as the settlor for the purposes of the resulting trust.

Can a court order a taking of accounts where money has been paid out in breach?

In the absence of a deed, a trustee continuing to act risks breaching their duty to act in accordance with the terms of the trust and their duty to account. In such circumstances, a court may make an order for taking of accounts to reimburse the trust for money paid out in breach of trustee duties.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Markets & Revenue Practice Group.

More Cleardocs information on related topics

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[1] Mantovani v Vanta Pty Ltd (No 2) [2021] VSC 771.

[2] Mantovani v Vanta Pty Ltd (No 2) [2021] VSC 771 [109].

[3] Mantovani v Vanta Pty Ltd (No 2) [2021] VSC 771 [111].

[4] Mantovani v Vanta Pty Ltd (No 2) [2021] VSC 771 [112].

[5] Re Porlock Pty Ltd [2015] NSWSC 1243.

[6] D.R. McKendry Nominees Pty Ltd [2015] VSC 560.

[7] Sutton v NRS(J) Pty Ltd [2020] NSWSC 826.

 

Lawyer in Profile

Melissa Ramov
Melissa Ramov
Lawyer
PH: 61 3 9258 3746

Melissa is a lawyer in the Maddocks Commercial team.

Melissa has been involved in acting for a range of commercial and professional industry clients.

Melissa advises extensively in the following areas:

  • drafting and reviewing commercial contracts;
  • corporate law;
  • self-managed super funds;
  • business and company sales and acquisitions; and
  • financial services law.