What can you do when your trust deed contains a mistake? The Victorian Supreme Court has allowed rectification of a superannuation trust deed by consent, opening the door for other trustees to correct these sorts of mistakes (ExxonMobil Superannuation Plan Pty Ltd v Esso Australia Pty Ltd [2010] VSC 357; Clayton Utz acted for the plaintiff trustee).

Departing from the usually strict test for rectification, the Court did not require "clear and convincing proof" of the requisite intention or that there was a mistake in the document. Instead, the Court was interested in whether:

  • there was "an appropriate evidentiary basis" for granting rectification; and
  • the settlement reached by the parties was "within the range of reasonable outcomes" in light of the rectification claim's chances of success.

The superannuation trust deed, and the unintended, unauthorised amendments

The employer sponsor of the ExxonMobil Superannuation Plan had a problem. In 1990, amendments were made to the trust deed which were unintended and unauthorised and were worth hundreds of millions of dollars in additional benefits.

The trustee also had a problem: how does it administer the trust deed when the employer sponsor says the amendments were unintended and unauthorised?

To solve the problem, the trustee commenced proceedings in the Victorian Supreme Court, asking the Court about the proper construction of certain provisions of the trust deed, and whether they should be rectified.

At the trustee's request, the Court appointed member representatives to represent each class of affected members of the fund.

The mediation and the compromise

After a lengthy case preparation, and a complex mediation process that lasted nearly six months, the parties adopted a novel settlement to the dispute.

They asked the Court to make a number of orders by consent, including orders:

  • rectifying the trust deed;
  • approving the sponsoring employer's and the member representatives' entry into the settlement;
  • approving the propriety of the trustee's decision to enter into the settlement; and
  • approving the trustee's past administrative practice in relation to certain aspects of the administration of the governing rules of the trust.

In return, the sponsoring employer agreed to provide affected members of the fund with new compromise benefits, worth approximately 26.5% of the estimated cost of the unrectified benefits.

What did the Court do - and what did it have to consider?

Justice Habersberger made the orders sought by the parties in the precise terms sought.

He had two main questions that he had to answer:

  • could he approve the trustee's decision to enter into the settlement; and
  • was the settlement "for the benefit of the absent persons"?

In approving the propriety of the trustee's decision to enter into the settlement, he commented that he was satisfied from the evidence that the trustee had power under the trust deed to enter into the settlement, exercised its discretion in good faith and gave fair and appropriate consideration to the relevant issues.

But was it "for the benefit of the absent persons"?

In considering the sponsoring employer's and the member representatives' entry into the settlement, Justice Habersberger considered whether the settlement was "for the benefit of the absent persons".

He noted that in considering whether the settlement was "for the benefit of the absent persons", he had to satisfy himself that:

  • there was "an appropriate evidentiary basis" for granting rectification; and
  • the settlement reached by the parties was "within the range of reasonable outcomes", in light of the sponsoring employer's chances of success in respect of the claims for rectification.

Having looked at the sponsoring employer's evidence and carefully considered the confidential opinions of Counsel for the represented members of the fund, Justice Habersberger was satisfied of these two matters.

He also noted that:

  • because the rectification orders were sought by consent, it was neither necessary nor appropriate to express a view on the substantive questions concerning rectification;
  • instead, he had to decide whether the settlement was appropriate and should therefore be approved.

So what does this mean for trustees - and others?

Rectification is an equitable remedy which may be ordered by a court if, by mistake, a written instrument as executed does not accord with the true agreement between the parties.

In this case, the parties did not need "clear and convincing" proof of the requisite intention or that there was a mistake in the document for the Court to grant rectification. Instead, the Court was interested in whether:

  • there was "an appropriate evidentiary basis" for granting rectification; and
  • the settlement reached by the parties was "within the range of reasonable outcomes", in light of the rectification claim's chances of success.

By granting rectification of an instrument by consent, this novel decision has opened the pathway for a greater scope to obtain rectifications of instruments.

But is this back-door rectification?

In some respects, the answer is yes as it allows a party to negotiate a settlement and obtain the other parties' consent and avoid the need to prove rectification to the stringent standard of proof typically required. This avenue may be helpful in situations where there is a potential difficulty proving rectification, for example if:

  • the passage of time or loss of documents makes it difficult to prove the parties' intention; or
  • the mistake was caused by consideration of irrelevant matters or failing to consider relevant matters. In other jurisdictions (for example, the UK) these types of mistakes may be rectified by the rule in Re Hastings-Bass, which is not good law in Australia.

However, the court still needs to be satisfied that:

  • the trustee's decision to enter into the settlement is proper; and
  • the overall outcome is for the benefit of those affected by the decision.