Gainer The Sequel – Lost Discretionary Trust Deed Failed for Uncertainty

For the second time in recent history (see prior article Part 1 and Part 2), the New South Wales Supreme Court (Court) has considered matters in relation to the case of Gainer.

The most recent decision of the Court, Application by Gainer Associates Pty Ltd [2024] NSWSC 1437, highlights the critical importance for trustees to retain trust deed documentation. Failure to do so can lead to the trust being invalidated by the Courts due to inability to ascertain the terms of the trust and consequentially, the objects of the trust.

In this matter, the loss of the trust deed of the Werner Thelen Family Trust (Trust) resulted in the Court finding that the trustee, Gainer Associates Pty Ltd (Gainer), was holding the assets of the Trust on resulting trust for the late Mr Werner Thelen (Werner) as the sole beneficiary.

Lost Trust Deed

In examining the circumstances surrounding the lost trust deed, the only remaining evidence regarding the establishment of the Trust came from a fixed and floating charge (charge) created by Gainer in favour of Bank of Western Australia. The charge given by Gainer both “in its own capacity and as trustee of the Werner Thelen Family Trust”, included particulars noting the date of establishment of the Trust as 1 April 1982. It also recorded Gainer as the trustee and Narelle Margaret Mayes (Narelle), who was Werner’s assistant at the relevant time, as the Settlor.

In her affidavit, Narelle deposed that she could not recall being party to the creating trust deed and was not involved in its establishment nor fulfilling the role of settlor. Although she did state that from time to time she was asked to witnessed Werner’s signature

The 2024 financial statements of the Trust established that a service station in Beenleigh, Queensland, and cash in a bank account, which together had a net value of $2.8 million, were the only assets of the Trust.

Despite attempts to locate the trust deed and the terms of the Trust by Mr Timothy Heesh, who was appointed as director of Gainer by NSW Trustee and Guardian, the trust deed could not be located.

Conclusion 1 – Failure of Certainty of Objects

The first conclusion drawn by the Court was that, in the absence of the trust deed and evidence to ascertain both the terms and beneficiaries of the Trust, as submitted by Counsel on behalf of the plaintiff, the lack of certainty of objects of the Trust rendered it invalid. The assets of the Trust were therefore found to be held on resulting trust by Gainer for Werner as the sole beneficiary of the Trust. Consequently, as Werner’s late wife, Gail Thelen, was the sole beneficiary of his estate, the assets of the Trust transferred to her estate.

Conclusion 2 – Resulting Trust

The second conclusion concerned the fixed and floating charge, which recorded Narelle as the settlor of the Trust. Counsel for the plaintiff submitted that the Court should treat this as an error, and that it was likely be a case that Narelle was mistakenly recorded as a party to the trust deed, instead of a mere witness to the establishment of the Trust. However, it was also argued that if Narelle ought to be considered as the settlor, her secretarial position meant that the Court should conclude that Werner, in the provision of the settled property, had no intention of divesting himself of the property for Narelle’s benefit.

Dispelling the possibility that Narelle had a beneficial interest in the Trust property and considering Narelle’s evidence, namely a mere recollection of events from several years prior, the Court favoured the evidence contained in the charge and found that Narelle was in fact the settlor of the Trust. The Court held that:

[28] […] [Narelle] was the settlor in name only, with any initial settled property provided to her by Werner (for example, the generally nominal amount paid to the trustee as the initial corpus of the trust). This finding is based on the Court’s experience with family trust deeds and common knowledge to the effect that it is not unusual for the named settlor to be someone such as the family solicitor or accountant, or a secretary or clerk in the employ of such a person. Whatever their position, there could be no doubt that [Narelle was not] intended to have any beneficial interest in the relevant trust.

Significance of the Decision

The case reiterates the importance for trustees to not only keep safe the trust deed, but to also keep proper records in respect to the Trust. Doing so is crucial to avoid a situation where the trust is rendered invalid due to a lack of certainty of objects of the trust, particularly in the absence of evidence of the explicit terms of the trust.

Importantly, where a trust is rendered invalid, such invalidation may trigger adverse taxation consequences, including capital gains tax and duty liability.

Alasdair Woodford
Principal
T: 03 5225 5217 | M: 0436 456 144
E: awoodford@ha.legal

Tayla Berger
Senior Associate
T: 03 5226 8559 | M: 0407 825 365
E: tberger@ha.legal

Joseph Flanagan
Senior Associate
T: 03 5226 8504 | M: 0491 307 550
E: jflanagan@ha.legal

Jemimah Fitzgerald
Lawyer
T: 03 5225 5219
E: jfitzgerald@ha.legal