BETWEEN : FRANKNELLY NOMINEES PTY LTD as Trustee for the F&S ABRUGIATO FAMILY TRUST

FRANKNELLY NOMINEES PTY LTD as Trustee for the ROMA FUND of the F&S ABRUGIATO FAMILY TRUST

HANS PETER HANSEN & DAVID MACDONALD JOHNSTON as Executors of the Estate of SEBASTIANA ABRUGIATO

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : ABRUGIATO -v- HANS PETER HANSEN AS EXECUTOR OF THE ESTATE OF SEBASTIANA ABRUGIATO [2012] WASC 362

Equity - Equitable remedies - Mistake - Rectification - Directing mind and will of the parties to a deed - Deed executed on the assumption that a dividend payment plan would be fully implemented - Rationale for rectification

Trusts - Trustees - Trustee's right of indemnity - Trustee's equitable lien or charge - Release of equitable property - Whether a trustee's right of indemnity in equity is capable of being excluded by the trust instrument - Whether a trustee's right of indemnity in equity, and the accompanying equitable lien or charge, are capable of being released upon the trustee transferring or vesting the trust assets in a new trustee

Interpretation Act 1984 (WA), s 5

Trustee Act 1958 (Vic), s 2(3), s 36(2)

Trustees Act 1962 (WA), s 5(3), s 71

Trusts Act 1973 (Qld), s 65, s 72

Application for an extension of time to appeal granted

Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365

Avtex Airservices Pty Ltd v Bartsch (1992) 107 ALR 539

Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd [1919] HCA 18; (1919) 26 CLR 410

Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374

Baxter v Federal Commissioner of Taxation [2002] FCA 1256; (2002) 196 ALR 519

Chief Commissioner of Stamp Duties for New South Wales v Buckle [1998] HCA 4; (1998) 192 CLR 226

Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] VSCA 2; (2001) 3 VR 526

Coates v McInerney (1992) 7 WAR 537

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337

Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329

Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42

Davis v Federal Commissioner of Taxation [2000] FCA 44; (2000) 171 ALR 654

Dimos v Dikeakos Nominees Pty Ltd [1996] FCA 1619; (1996) 68 FCR 39

Gibbon v Mitchell [1990] 1 WLR 1304

Hardoon v Belilios [1901] 1 AC 118

Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773

JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691

Jennings v Mather [1901] 1 QB 108

Kemtron Industries Pty Ltd v Commissioner of Stamp Duties (Qld) [1984] 1 Qd R 576

Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550

Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976) 50 ALJR 769

Mackenzie v Coulson (1869) LR 8 Eq 368

Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336

McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623

Muir v City of Glasgow Bank (In liq) (1879) 4 App Cas 337

National Trustees Executors & Agency Co of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268

NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740

Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360

Polly Peck International plc v Henry [1999] 1 BCLC 407

Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447

Re Ballman; Ex parte Garland [1804] EngR 336; (1804) 10 Ves Jun 110; 32 ER 786

Re Evans; Evans v Evans (1887) 34 Ch D 597

Re German Mining Co; Ex parte Chippendale [1854] EngR 664; (1854) 4 De G M & G 19; 43 ER 415

Re Johnson (1880) 15 Ch D 548

Re Owers [1941] Ch 389

Re Pumfrey (1882) 22 Ch D 255

RJK Enterprises Pty Ltd v Webb [2006] QSC 101; [2006] 2 Qd R 593

Rothmore Farms Pty Ltd v Belgravia Pty Ltd [1999] FCA 745

RWG Management Ltd v Commissioner for Corporate Affairs [1985] VicRp 42; [1985] VR 385

Savage v Union Bank of Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170

Southern Wine Corporation Pty Ltd (In liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162

Stott v Milne (1884) 25 Ch D 710

Strickland v Symons (1884) 26 Ch D 245

Tucker v Bennett (1887) 38 Ch D 1

Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319

Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226

Wise v Perpetual Trustee Co Ltd [1903] AC 139

Worrall v Harford [1802] EngR 342; (1802) 8 Ves Jun 4; 32 ER 250

Wright v Vanderplank [1856] EngR 331; (1856) 8 De G M & G 133; 44 ER 340

1 McLURE P: I agree that the appeal should be dismissed generally for the reasons given by Buss JA. However, I propose to make some brief additional comments.

2 It is unnecessary to repeat all of the detailed factual background. It is sufficient for present purposes to note the following.

3 Sebastiana Abrugiato's succession plan was partially thwarted by the invalidity of resolutions of her company, Abrugiato Pty Ltd (Abrugiato), passed shortly before her death on 10 June 2008. The beneficiaries of the thwarted intention are Mrs Abrugiato's children, Roberto Abrugiato (first respondent) and Luciana Santacaterina (second respondent) at the expense of her other children, Mirella Keutzer, Maria Murray and Morena Abrugiato (fourth respondents).

4 As at August 2006, Mrs Abrugiato owned or controlled net assets valued at approximately $10.869 million. The assets in question were owned by Mrs Abrugiato (real estate and an allocated pension valued at approximately $634,000), Franknelly Nominees Pty Ltd (Franknelly) as trustee of the F & S Abrugiato Family Trust (Family Trust) and Abrugiato.

5 Abrugiato had approximately $2 million of retained earnings, representing profits derived by the Family Trust which were distributed to Abrugiato. A loan of the distributed profits was then made by Abrugiato to the Family Trust.

6 The succession plan was documented by RSM Bird Cameron in August 2006 (the August 2006 succession plan) and implemented, with amendments, by two instruments, Mrs Abrugiato's will (the Will) and a Deed of Separation, both of which are dated 13 June 2007. Mrs Abrugiato was legally blind at (and after) the time she executed the instruments. The final plank of the succession plan was a tax driven dividend payment plan which involved Abrugiato paying the retained earnings to Mrs Abrugiato by way of dividends over five years which Mrs Abrugiato would then gift to the Family Trust in discharge of the debts owed by the Family Trust to Abrugiato and to Mr and Mrs Abrugiato. Mr Abrugiato had died in June 2000.

7 Under the Will the shares in Abrugiato were given to Mrs Abrugiato's five children as tenants in common in equal shares.

8 The Deed of Separation created separate trust funds within the Family Trust being the Roberto Abrugiato Fund (RA Fund), the Luciana Santacaterina Fund (LS Fund) and the Roma Fund. Abruzzi Pty Ltd was appointed the trustee of the RA Fund, Ortana Pty Ltd was appointed the trustee of the LS Fund and Franknelly remained the trustee of the Family Trust and was appointed the trustee of the Roma Fund.

9 In the Deed of Separation, Abruzzi covenanted with Franknelly that it would assume liability for payment or satisfaction of the debts and liabilities specified in Item 7.2 of the Schedule. Item 7.2 of the Schedule stated that the RA Fund had 'nil' liabilities.

10 Ortana covenanted with Franknelly that it would assume liability for payment or satisfaction of the debts and liabilities specified in Item 8.2 of the Schedule. Item 8.2 of the Schedule identified the sum of $2,572 apparently being Family Trust distributions to the second respondent's children.

11 Item 10.2 of the Schedule relates to the Roma Fund and identifies the 'liabilities and amounts due to beneficiaries' as including $1,917,546 due to Abrugiato and $67,836 due to Mr and Mrs Abrugiato.

12 On the proper construction of the Deed of Separation, Franknelly would continue to be liable for the specified Family Trust liabilities, which liabilities were intended to be discharged during Mrs Abrugiato's lifetime from the retained earnings in Abrugiato.

13 The final asset allocation document approved by Mrs Abrugiato (final asset allocation) differed from that in the succession plan. It is reflected in the Will and Deed of Separation and shows that the first and second respondents would each receive approximately $226,000 (around $300,000 by the time of trial) less than the fourth respondents. Mrs Abrugiato's original intention was to 'even up this inequity' by bequeathing the residue of her estate (her allocated pensions) to the first and second respondents. However, she abandoned that intention and on 17 November 2006 Mrs Abrugiato instructed RSM Bird Cameron that the residue of her estate was to be distributed equally between her children.

14 By April 2008 Mrs Abrugiato, as governing director of Abrugiato, had passed three resolutions to pay herself dividends totalling $1,885,891, being the retained earnings in Abrugiato's accounts. Implementation of the dividend payment plan was accelerated because of Mrs Abrugiato's failing health. All of the resolutions were invalid because they were not passed at a general meeting of Abrugiato.

15 If on Mrs Abrugiato's death the dividend payment plan had not been implemented and the Roma Fund/Franknelly was solely liable for the satisfaction of the liabilities in Item 10.2 of the Deed of Separation, the first and second respondents would receive approximately $275,000 more than the fourth respondents (a turnaround of approximately $500,000) from the property under their mother's control.

16 Franknelly claimed that the trial judge erred in failing to rectify the Deed of Separation to allocate the liabilities of the Family Trust one-fifth to the RA Fund, one-fifth to the LS Fund and three-fifths to the Roma Fund. That would have the effect of all the Family Trust's liabilities being borne equally by all the children. In that event, the fourth respondents would each receive approximately $388,000 more than the first and second respondents.

17 It appears to have been accepted by all parties that Mrs Abrugiato was the guiding mind of all parties to the Deed of Separation, including Abruzzi and Ortana. To prove Mrs Abrugiato's actual intention, reliance was placed on two extracts from the August 2006 succession plan and letters associated with a resolution on 4 April 2008 for the payment of dividends to Mrs Abrugiato. Reliance is placed on par 7.1.2 of the August 2006 succession plan which states:

In the event that you pass away, your children will each own an equal share in [Abrugiato]. [Abrugiato] will be owed money by the [Family Trust] or any new trusts that are created. This could be the cause of family conflict. Roberto and Luciana for example may demand that the loans from the [Family Trust] are repaid so that they can access the retained earnings locked up in [Abrugiato] ... It would be better if [Abrugiato] did not have any loans owed to it by the [Family Trust] or any new trusts.

18 The August 2006 succession plan recommended the dividend payment plan (par 7.1.4). Reliance is also placed on par 7.2.3 which refers to splitting the Family Trust as follows:

The [Family Trust] would be split into 5 trusts one for each of your children in accordance with your suggested allocation of the [Family Trust] property as shown in the appendices ...

The liabilities of the [Family Trust] will be apportioned between each of the new trusts.

19 Paragraph 7.2.1 says that '[i]t is intended that the assets of the [Family Trust] are left equally between your children', which is reflected in the allocation of assets in annexure 3 of the August 2006 succession plan.

20 The resolution on 4 April 2008 related to a dividend of $1,085,891. On that date Mrs Abrugiato signed three letters addressed to Franknelly, Abruzzi and Ortana. The letters said that Mrs Abrugiato gifted amounts to the Roma Fund ($651,534.60), the RA Fund ($217,178.20) and the LS Fund ($217,178.20). Each letter also said that to satisfy the gift, instructions had been issued to Abrugiato to offset each trustee's loan account with a dividend declared to Mrs Abrugiato on 4 April 2008.

21 An obstacle to Franknelly's rectification claim is that the intention referred to in the August 2006 succession plan that the assets of the Family Trust be left equally between Mrs Abrugiato's children was not put into effect. The final asset allocation included five parcels of real property owned by the Family Trust, four of which (having a total value of $6.21 million) were shared by the fourth respondents and one of which (valued at $2.5 million) was shared by the first and second respondents. The first and second respondents received a greater share of the real property owned by Mrs Abrugiato.

22 Moreover, as equal shareholders in Abrugiato, the liabilities of the Family Trust would have been apportioned equally between the five children if the dividend payment plan had been implemented as intended. However, it is the case that the succession plan recommends both the dividend payment plan and the equal apportionment of liabilities following 'splitting the trust' (or more accurately splitting the funds in the Family Trust). That is, the existence of the dividend payment plan was not recommended as an alternative route to the apportioning of liabilities equally among the children through their respective Funds. Further, it is reasonable to expect that Mrs Abrugiato would still wish to implement the dividend payment plan even if the Deed of Separation provided for equal allocation of Family Trust liabilities because of the risk of the first and second respondents demanding that the loans be repaid (as indeed they eventually did). On the other hand, the equal allocation of trust liabilities proposed in the August 2006 succession plan is linked with the equal allocation of trust assets, which did not occur. Thus the August 2006 succession plan is equivocal on the subject.

23 The high watermark of the evidence supporting Franknelly's rectification claim are the letters of 4 April 2008. The apportionment of a gift of dividends to each of the Funds supports the claim that the Deed of Separation was intended to effect an equal apportionment of the Family Trust's liabilities. However, there are two problems with that evidence. First, the letters were prepared by Mr Hansen who had not read the Deed of Separation. Second, there was no evidence of what was actually said to

and by Mrs Abrugiato on the occasion on which she signed the April 2008 resolution and letters.

24 Having regard to the evidence as a whole, Franknelly has failed to establish that the trial judge erred in failing to find that Mrs Abrugiato's continuing intention was that the Deed of Separation provide that the Family Trust's liabilities were to be allocated one-fifth to the RA Fund, one-fifth to the LS Fund and three-fifths to the Roma Fund.

25 The remaining issue on which I wish to comment is Franknelly's claim that it is entitled to be indemnified out of the assets transferred to the RA Fund and the LS Fund under the Deed of Separation in respect of Family Trust liabilities existing immediately prior to its execution. For the reasons discussed above, I do not regard the dividend payment plan as inconsistent with the rectification claim or the indemnity claim. Otherwise I agree with Buss JA for the reasons he gives that the only construction of the Deed of Separation reasonably open is that the Roma Fund is to be solely responsible, vis-a-vis the other Funds, for the liabilities specified in Item 10.2 of the Schedule.

26 BUSS JA: This is an appeal from declarations and orders made by Corboy J after the trial of numerous preliminary issues in Supreme Court proceedings. The litigation arises from disputes between five siblings as to their financial entitlements under arrangements made by their late mother for the distribution among the siblings of assets owned or controlled by her. Unfortunately, the mother's hope that the arrangements would avoid the emergence of disagreements between her children in relation to the benefits she generously conferred on them has not been realised.

27 The appeal notice was not filed within the prescribed period. The appellants have applied for an extension of time to appeal and leave to appeal.

28 Francesco Abrugiato (Mr Abrugiato) and Sebastiana Abrugiato (Mrs Abrugiato) were married and had five children.

29 The children are the first respondent, Roberto Abrugiato (Roberto), the second respondent, Luciana Santacaterina (Luciana), and the fourth respondents, Mirella Edigarda Keutzer (Mirella), Maria Viviana Murray (Maria) and Morena Lisa Abrugiato (Morena).

30 Mr Abrugiato died on 10 June 2000. Mrs Abrugiato died on 10 June 2008.

31 The third respondents, Hans Peter Hansen (Mr Hansen) and David MacDonald Johnston (Mr Johnston), are executors of Mrs Abrugiato's estate. They are also directors of Birdanco Nominees Pty Ltd practising as RSM Bird Cameron (Bird Cameron), chartered accountants.

32 At all material times, Franknelly Nominees Pty Ltd (Franknelly) has been the trustee of the F&S Abrugiato Family Trust (the Family Trust). Franknelly in that capacity is the first appellant. The Family Trust was created by a deed of trust dated 11 August 1975 (the Family Trust Deed).

33 At all material times, Franknelly has been the trustee of the Roma Fund of the Family Trust. Franknelly in that capacity is the second appellant.

34 At all material times, Mrs Abrugiato was the governing director of, and a shareholder in, the fifth respondent, Abrugiato Pty Ltd (Abrugiato).

35 As at August 2006, Mrs Abrugiato owned or controlled assets having a market value of about $10,868,988. Most of the assets she controlled were owned by Franknelly as trustee of the Family Trust. Mrs Abrugiato owned real estate in Western Australia and Italy.

36 In late 2005, Mrs Abrugiato sought advice from Bird Cameron in relation to estate planning; in particular, about the distribution of the assets she owned or controlled among her children.

37 In August 2006, Bird Cameron completed the preparation of a document (the Succession Plan) which contained recommendations as to the manner in which Mrs Abrugiato might achieve her estate planning objectives.

38 The Succession Plan proposed, amongst other things, a 'trust splitting' arrangement and a 'dividend payment' plan.

Overview of the 'trust splitting' arrangement

39 The trust splitting arrangement involved the creation of separate trust funds within the Family Trust. These funds, namely the Roberto Abrugiato Fund, the Luciana Santacaterina Fund and the Roma Fund, were created pursuant to a deed dated 13 June 2007 (the Deed of Separation). At all material times:

(a) the sixth respondent, Abruzzi Pty Ltd (Abruzzi), has been the trustee of the Roberto Abrugiato Fund;

(b) the seventh respondent, Ortana Pty Ltd (Ortana), has been the trustee of the Luciana Santacaterina Fund; and

(c) as I have mentioned, Franknelly has been the trustee of the Roma Fund.

40 The dividend payment plan involved progressively eliminating liabilities of Franknelly as trustee of the Family Trust to Abrugiato and Mr and Mrs Abrugiato, and dealing with the corresponding assets held by Abrugiato.

41 The essential elements of the plan were as follows.

42 Upon Mrs Abrugiato's death, Abrugiato would be owned equally by her children. When Mrs Abrugiato approved the Succession Plan, Abrugiato had about $2,000,000 of retained earnings. The retained earnings represented profits derived by the Family Trust through the operation of a restaurant business. The profits were 'distributed' by the Family Trust to Abrugiato. A 'loan' of the distributed profits was then made by Abrugiato to the Family Trust. The loan was described in the Family Trust's accounts as a 'Beneficiary Loan' and classified as a current liability. The loan was described in Abrugiato's accounts as an 'Undrawn Beneficiary Entitlement' and classified as a non-current asset. The distribution and the loan were effected by journal entries.

43 Bird Cameron perceived that the retained earnings would 'pose problems' in the liquidation of Abrugiato after Mrs Abrugiato's death. The dividend payment plan was adopted to deal with these perceived problems. The plan involved Abrugiato paying the retained earnings to Mrs Abrugiato by way of dividends over a period of five years. The five-year period was determined by taxation considerations. The dividends would, in turn, be gifted by Mrs Abrugiato to the Family Trust. The debts owing by the Family Trust to Abrugiato and Mr and Mrs Abrugiato would then be discharged.

44 By 2008, Mrs Abrugiato's health had deteriorated and it was therefore decided to accelerate payments to her under the dividend payment plan.

The relevant features of the Succession Plan

45 The Succession Plan was prepared by Geoffrey Ivanac of Bird Cameron. It was dated August 2006 and sent by post to Mrs Abrugiato on 1 September 2006. Mr Ivanac was a chartered accountant who specialised in estate and succession planning.

46 In a letter dated 10 January 2006 from Mr Ivanac to Mrs Abrugiato, Mr Ivanac said he understood Mrs Abrugiato's estate and succession planning objectives to include:

(a) providing for all of her children in a 'fair and equitable manner';

(b) reviewing and 'updating' control of her 'entities' so as to accord with her succession planning objectives;

(c) restructuring her 'entities' so her children would receive a 'fair and equitable share' of her estate without 'triggering unnecessary Capital Gains Tax and Stamp Duty' and so control of the entities would 'flow' to her children without the transfer of control being contested; and

(d) reviewing 'inter-entity loans' and loans between her entities and family members and considering the implications of separating the assets owned by her 'company'.

47 The primary judge accepted that Mr Ivanac's letter accurately reflected Mrs Abrugiato's estate and succession planning objectives when the letter was written [34].

48 The Succession Plan contained a number of sections.

49 Section 2 summarised the recommendations made in the plan. The recommendations included:

(a) Mrs Abrugiato bequeath her shares in Abrugiato to her children equally;

(b) Abrugiato commence paying the retained earnings, either by a lump sum payment or over a period of five years;

(c) the undrawn entitlements of beneficiaries of the Family Trust be paid by Franknelly, either as a lump sum or over a period of five years;

(d) a loan made by the Family Trust to Luciana be repaid;

(e) the Family Trust be split into several trusts for each of Mrs Abrugiato's children;

(f) properties located at 2 Tuckfield Street (where Mrs Abrugiato resided) and 6 Hillside Street be devised to Mrs Abrugiato's children as tenants in common in equal shares;

(g) a property located at 4 Tuckfield Street be devised to Roberto and Luciana as tenants in common in equal shares;

(h) Mrs Abrugiato's will record that Roberto and Luciana were receiving a greater share of her estate assets because Mirella, Maria and Morena had received a greater share of the assets controlled by Mr Abrugiato that did not form part of her estate; and

(i) Mrs Abrugiato retain control of the Family Trust and Abrugiato for a period of five years, at which time the Succession Plan should be reviewed.

50 Section 7 of the Succession Plan contained a detailed explanation of Bird Cameron's recommendations. The primary issues relating to the Family Trust and Franknelly, as identified in section 7, concerned the manner in which $1,917,546 (as at 30 June 2006) owing by the Family Trust to Abrugiato might be repaid and how $2,188,429 (as at 30 June 2006) of retained earnings by Abrugiato could be distributed while minimising the associated taxation liability.

51 The Succession Plan said in relation to Abrugiato's retained earnings:

In the event that you pass away, your children will each own an equal share in [Abrugiato]. [Abrugiato] will be owed money by the [Family] Trust or any new trusts that are created. This could be the cause of family conflict. Roberto and Luciana for example may demand that the loans from the [Family] Trust are repaid so that they can access the retained earnings locked up in [Abrugiato].

This may cause assets being required to be sold by the [Family] Trust or any new trusts, triggering CGT.

It would be better if [Abrugiato] did not have any loans owed to it by the [Family] Trust or any new trusts (7.1.2).

52 Bird Cameron therefore recommended that the amount owing by the Family Trust to Abrugiato, and Abrugiato's retained earnings, be paid, either as a lump sum or over a five-year period. However, Bird Cameron advised Mrs Abrugiato that:

(a) If the retained earnings were paid as a lump sum, Mrs Abrugiato could be liable for additional income tax of $330,000 and, if so, it might be necessary, in order to meet that liability, to sell one of the properties she had intended to leave to her children. If it was necessary to sell a property then capital gains tax would be payable on the sale.

(b) The paying of the retained earnings over a period of five years would enable the income tax liability on the earnings to be met from income that would be received during the period from rental properties and Mrs Abrugiato's allocated pensions.

53 Section 7 identified a number of advantages from the proposal to pay Abrugiato's retained earnings by way of dividends to Mrs Abrugiato. These advantages included, 'payment of [Abrugiato's] retained earnings will assist in avoiding any family conflict that may arise in the event that you pass away'; 'the risk of you or your children having debit loans in [the Family Trust or Abrugiato] will be reduced'; and 'the need for a forced sale of assets in the event that you pass away will be reduced' (7.1.5).

54 Section 7 recommended that the Family Trust be split into five trusts, one for each of Mrs Abrugiato's children. A proposed allocation of the real estate held by the Family Trust, and other properties under Mrs Abrugiato's control, was depicted in annexure 3 to the plan. The annexure, entitled 'Revised Allocation of Assets', was as follows:

55 At a meeting on 14 September 2006, Mrs Abrugiato instructed Mr Ivanac to make adjustments to the allocation of assets proposed in the Succession Plan. It was agreed that Mr Ivanac would prepare a revised allocation of assets to reflect those instructions.

56 On 10 October 2006, Mr Ivanac wrote to Mrs Abrugiato enclosing a revised allocation of assets (the Final Asset Allocation).

58 Mr Ivanac's letter dated 10 October 2006 noted that, on the basis of the Final Asset Allocation, Roberto and Luciana would each receive $225,971 less than Mirella, Maria and Morena. The letter also noted that at the meeting on 14 September 2006 Mrs Abrugiato had said she proposed to 'even up this inequity' by bequeathing the residue of her estate to Roberto and Luciana.

59 On 17 November 2006, there was a meeting between Mr Ivanac and Mrs Abrugiato and others. This meeting was the last occasion on which the formulation of the Succession Plan and the allocation of assets was discussed between Mr Ivanac and Mrs Abrugiato. The Succession Plan was in effect approved by Mrs Abrugiato at the meeting.

60 In 2011, Roberto and Luciana, as plaintiffs, commenced proceedings in the Supreme Court against various of the other parties to this appeal, as defendants. Also in 2011, Mr Hansen and Mr Johnston as executors of Mrs Abrugiato's estate, as plaintiffs, commenced proceedings against the other parties to this appeal, as defendants.

62 The litigation arose from an estrangement between Mrs Abrugiato's children. Roberto and Luciana comprised one faction and Mirella, Maria and Morena the other. The estrangement developed before Mrs Abrugiato's death and its existence informed the estate and succession planning recommendations in the Succession Plan.

63 The litigation concerned various disputes relating to the implementation of the Succession Plan including, in particular, the creation of separate trust funds within the Family Trust and the dividend payment plan.

64 At all material times, Mrs Abrugiato held the office of guardian under the Family Trust Deed.

65 Clause 19 of the Family Trust Deed provided, relevantly and in substance, that, subject to the consent of the guardian of the Family Trust, the trustee for the time being of the Family Trust may, at any time and from time to time, 'by deeds revoke add to or vary all or any of the trusts terms and conditions hereinbefore contained or the trusts terms and conditions contained in any variation or alteration or addition made thereto from time to time and may by the same or any other deeds ... declare any new or other trusts terms and conditions concerning the Trust Fund or any part or parts thereof the trusts whereof shall have been so revoked added to or varied'.

66 By a deed of variation (the Deed of Variation) made on 13 June 2007 between Franknelly and Mrs Abrugiato, Franknelly as trustee, with the consent of Mrs Abrugiato as guardian, varied the Family Trust Deed (as previously varied).

67 By cl 2.4 of the Deed of Variation, cl 16 of the Family Trust Deed was amended by inserting the following paragraph before par (a):

(aa) The Appointor shall be entitled by instrument in writing at any time and from time to time:

(i) to remove any Trustee hereof;

(ii) to appoint any additional trustee or trustees;

(iii) to appoint a new trustee or trustees in the place of any trustee who has resigned or been removed or ceases to be a trustee by operation of law or the terms of this deed; and

(iv) to appoint a separate trustee for any part of the Trust Fund whether or not new trustees are or are to be appointed for any other part of the Trust Fund.

68 By cl 2.5 of the Deed of Variation, new clauses, following cl 16, were inserted as follows:

16A. If the Appointor exercises the power contained in sub-paragraph (aa)(iv) of clause 16 then:

(a) the Appointor may give the Trustee directions in relation to the matters set out in clause 16B; and

(b) each part of the Trust Fund will thereafter be held by the separate trustee separately from each other part of the Trust Fund.

(c) the exercise of any powers or discretions by a separate trustee will only have effect with respect to the part of the Trust Fund held by that separate trustee;

(d) in respect of liabilities incurred after their appointment a separate trustee is only entitled to be indemnified out of that part of the Trust Fund held by that separate trustee and not out of any other part of the Trust Fund;

(e) in respect of liabilities incurred after their appointment a separate trustee will not have any right of contribution or indemnity from any other separate trustee.

A reference in this paragraph to a separate trustee includes a reference to the Trustee of the balance of the Trust Fund.

16B. If the Appointor exercises the power contained in sub-paragraph (aa)(iv) of clause 16 the Trustee holding office immediately before the exercise of the power must in accordance with any directions which the Appointor may give:

(a) divide the Trust Fund into the parts for which separate trustees have been appointed;

(b) prepare separate accounts for each part made up to the date of division and which accounts are not required to be consolidated; and

(c) identify each part by a distinctive name.

69 At all material times, Mrs Abrugiato held the office of appointor under the Family Trust Deed.

70 The Deed of Separation was made on 13 June 2007 between Mrs Abrugiato, Franknelly, Abruzzi and Ortana.

71 By the Deed of Separation, Mrs Abrugiato in her capacity as appointor of the Family Trust:

(a) exercised the power conferred by cl 16 of the Family Trust Deed in respect of that part of the Family Trust Fund specified in item 7.1 of the schedule to the Deed of Separation (that part of the trust fund being in the future to be known as the Roberto Abrugiato Fund), by removing Franknelly as trustee of the Roberto Abrugiato Fund and appointing Abruzzi as trustee in its place (recital C read with cl 3); and

(b) exercised the power conferred by cl 16 of the Family Trust Deed in respect of that part of the Family Trust Fund specified in item 8.1 of the schedule to the Deed of Separation (that part of the trust fund being in the future to be known as the Luciana Santacaterina Fund), by removing Franknelly as trustee of the Luciana Santacaterina Fund and appointing Ortana as trustee in its place (recital D read with cl 4).

72 At all material time after Mrs Abrugiato's death, Roberto controlled Abruzzi, and Luciana controlled Ortana.

73 At all material times after Mrs Abrugiato's death, Mirella, Maria and Morena controlled Franknelly.

74 By cl 5 of the Deed of Separation, Franknelly acknowledged:

5.1 its removal as trustee of The Roberto Abrugiato Fund and The Luciana Santacaterina Fund;

5.2 the appointment of [Abruzzi] as trustee of The Roberto Abrugiato Fund and the appointment of [Ortana] as trustee of The Luciana Santacaterina Fund respectively; and

5.3 the continuation of the appointment of [Franknelly] as trustee for the balance of the [Family] Trust Fund ... , being The Roma Fund; for convenience the assets comprised therein are specified in Item 10.1 of the Schedule and are subject to the liabilities and liabilities for payment of those amounts due to or set aside for beneficiaries of the [Family] Trust as are specified in Item 10.2 of the Schedule.

75 By cl 6.1 of the Deed of Separation, Franknelly covenanted with Mrs Abrugiato as appointor and with Abruzzi and Ortana as separate trustees, relevantly, as follows:

[T]hat it will immediately on the execution of this deed:

6.1.1 take all necessary action to divide the [Family] Trust Fund ... into The Roberto Abrugiato Fund, The Luciana Santacaterina Fund and The Roma Fund;

6.1.2 prepare separate accounts for The Roberto Abrugiato Fund, The Luciana Santacaterina Fund and The Roma Fund made up to the date of division, but not to consolidate those accounts;

6.1.3 take all necessary action to transfer The Roberto Abrugiato Fund to [Abruzzi] in its capacity as trustee of The Roberto Abrugiato Fund or to deal with The Roberto Abrugiato Fund as otherwise directed by [Abruzzi];

...

6.1.5 take all necessary action to transfer The Luciana Santacaterina Fund to [Ortana] in its capacity as trustee of The Luciana Santacaterina Fund or to deal with The Luciana Santacaterina Fund as otherwise directed by [Ortana].

76 By cl 7 of the Deed of Separation, Abruzzi accepted the appointment as trustee of the Roberto Abrugiato Fund and covenanted as follows:

7.1 [Abruzzi] accepts the appointment as trustee of The Roberto Abrugiato Fund and covenants to be bound by and subject to the trusts, powers and provisions contained in the [Family] Trust Deed in respect of The Roberto Abrugiato Fund.

7.2 [Abruzzi] covenants with [Franknelly] that [Abruzzi] assumes liability for payment or satisfaction of those debts and liabilities, and liability for payment of those amounts due to or set aside for beneficiaries of the [Family] Trust, each as are specified in Item 7.2 of the Schedule and undertakes to indemnify and hold [Franknelly] harmless from all claims and liability in respect thereof.

77 By cl 8 of the Deed of Separation, Ortana accepted the appointment as trustee of the Luciana Santacaterina Fund and entered into covenants relevantly identical to those entered into by Abruzzi under cl 7. Clause 8.2 refers to item 8.2 of the schedule whereas cl 7.2 refers to item 7.2 of the schedule.

78 The Deed of Separation provided that the balance of the Family Trust Fund was to be known in the future as the Roma Fund and that Franknelly would continue as the trustee of the Roma Fund (recital E read with cl 5.3). Also, the deed provided that the assets comprised in the Roma Fund were specified in item 10.1 of the Schedule and were subject to the liabilities and liabilities for payment of those amounts due or set aside for beneficiaries of the Family Trust as were specified in item 10.2 of the Schedule (cl 5.3).

79 Items 7, 8 and 10 of the schedule to the Deed of Separation read:

Item 7: The Roberto Abrugiato Fund (Recital C)

7.1 Assets

Land, together with all improvements, plant and equipment thereon:

One half share as tenant in common in the land being Portion of each of Fremantle Town Lots 19, 31 and 32, Certificate of Title Volume 1646 Folio 341;

Item 8: The Luciana Santacaterina Fund (Recital C: sic)

8.1 Assets

Land, together with all improvements, plant and equipment thereon:

One half share as tenant in common in the land being Portion of each of Fremantle Town Lots 19, 31 and 32, Certificate of Title Volume 1646 Folio 341;

Item 10: Balance of the Trust Fund of The F. & S. Abrugiato Family Trust - The Roma Fund (clause 5.3)

10.1 Assets

Land, together with all improvements, plant and equipment thereon:

Lot 88 on Diagram 18132, Certificate of Title Volume 1180 Folio 592

One half share as tenant in common in the land being Lot 235 on Deposited Plan 301060 18132, Certificate of Title Volume 1204 Folio 283.

Lot 3 on Plan 1501, Certificate of Title Volume 1290 Folio 25

Lot 4 on Plan 1660, Certificate of Title Volume 1280 Folio 152

Cash and Cash at Bank (at 30 June 2006 being $233,717)

Together with the books and records of the [Family] Trust and any assets of the [Family] Trust not specified in either Item 7.1 or 8.1 of this Schedule.

10.2 Liabilities and amounts due to beneficiaries

Abrugiato Pty Ltd (at 30 June 2006 being $1,917,546)

80 After the proceedings were consolidated, the parties identified numerous issues requiring determination. The primary judge directed that 12 issues be tried as 'separate' or 'preliminary' issues. His Honour presided over the trial of these issues.

81 The preliminary issues of direct relevance to this appeal are:

(a) whether the Deed of Separation should be rectified (Issue 1);

(b) whether Franknelly as trustee of the Family Trust is entitled to be indemnified out of the assets of the Roberto Abrugiato Fund and/or the Luciana Santacaterina Fund and, if so, to what extent and in respect of what liabilities (Issue 8);

(c) whether, on the proper construction of the Deed of Separation and the Family Trust Deed, the trustee of the Roberto Abrugiato Fund and the trustee of the Luciana Santacaterina Fund are each liable for the payment or satisfaction of one-fifth of the debts and liabilities of the Family Trust and have undertaken to indemnify and hold the trustee of the Roma Fund harmless from all claims and liability in respect thereof (Issue 10); and

(d) whether, on the proper construction of the Deed of Separation, the liabilities of the Family Trust are apportioned one-fifth to Abruzzi as trustee of the Roberto Abrugiato Fund, one-fifth to Ortana as trustee of the Luciana Santacaterina Fund and three-fifths to Franknelly as trustee of the Roma Fund (Issue 11).

Issues 1, 10 and 11: the contentions at trial

82 At trial, Franknelly, Mirella, Maria and Morena alleged Mrs Abrugiato intended that the assets she owned or controlled would be distributed 'fairly and equitably' between her children. Also, it was alleged she intended that the liabilities of the Family Trust would be divided equally between the children [131].

(a) item 7.2 of the schedule, relating to the Roberto Abrugiato Fund, stated that the Fund had 'nil' liabilities and that 'nil' amounts were due to beneficiaries for the purposes of cl 7.2;

(b) item 8.2 of the schedule, relating to the Luciana Santacaterina Fund, stated that the liabilities and amounts due to beneficiaries, for the purposes of cl 8.2, were $2,572, those liabilities and amounts apparently being distributions to Luciana's children; and

(c) item 10.2 of the schedule, relating to the Roma Fund, stated that the liabilities and amounts due to beneficiaries, for the purposes of cl 5.3, were $1,991,480, including $1,917,546 due to Abrugiato and $67,836 due to 'F&S Abrugiato' (that is, Mr and Mrs Abrugiato).

84 Franknelly, Mirella, Maria and Morena contended that, on the proper construction of the Deed of Separation and the Family Trust Deed, each of Abruzzi as trustee of the Roberto Abrugiato Fund and Ortana as trustee of the Luciana Santacaterina Fund was liable for the payment or satisfaction of one-fifth of the debts and liabilities of the Family Trust and had undertaken to indemnify and hold the trustee of the Roma Fund harmless from all claims and liability in respect thereof. Alternatively, Franknelly contended that the Deed of Separation should be rectified to give effect to Mrs Abrugiato's alleged intention that the liabilities of the Family Trust should be allocated one-fifth to the Roberto Abrugiato Fund, one-fifth to the Luciana Santacaterina Fund and three-fifths to the Roma Fund [132].

Issues 1, 10 and 11: the primary judge's findings: introduction

(a) the liabilities of the Family Trust to Abrugiato and Mr and Mrs Abrugiato were to be 'discharged over time as part of the dividend payment plan'; and

(b) Mrs Abrugiato knew of the plan and its purpose [165].

86 The parties were agreed at trial, and the primary judge accepted, that:

(a) it was Mrs Abrugiato's objectively determined intention that was relevant for the purpose of construing the Deed of Separation; and

(b) the Deed of Separation embodied, in substance, the exercise by Mrs Abrugiato of a power of appointment, and it was her intention that was determinative of the claim for rectification [182] - [183].

Issues 1, 10 and 11: the primary judge's findings: change of personnel at Bird Cameron

87 In December 2006, Mr Ivanac resigned as an employee of Bird Cameron. In or about mid-December 2006, David Groves, a director of Bird Cameron, assumed day-to-day responsibility for Mrs Abrugiato's succession planning. Mr Ivanac had been assisted by Tammy Haines, a para-professional. Subsequently, she assisted Mr Groves with the implementation of the Succession Plan [64].

Issues 1, 10 and 11: the primary judge's findings: the drafting of the Deed of Separation

88 The Deed of Separation was drafted by Grahame Young, a barrister.

89 By letter dated 7 February 2007, drafted by Mr Ivanac before his departure and settled by Mr Groves, Bird Cameron instructed Mr Young to prepare the documents necessary to carry out the trust splitting arrangement [65].

90 Mrs Abrugiato was to be the guardian and appointor of each of the Roberto Abrugiato Fund, the Luciana Santacaterina Fund and the Roma Fund. Her successors as the guardian and appointor were to be:

(b) Luciana for the Luciana Santacaterina Fund; and

(c) Mirella, Maria and Morena for the Roma Fund [66].

91 Mrs Abrugiato and Morena were the directors of Abruzzi and Ortana before and after the Deed of Separation was executed on 13 June 2007 [66].

92 The letter of instruction to Mr Young included a section, 'Assets/Liabilities', in which it was stated, 'the assets and liabilities of [the Family Trust] are to be split as shown on the enclosed draft Trial Balance'. Four documents were listed as having been enclosed with the letter, including a 'draft Trial Balance for the period ended 30 June 2006'. By letter dated 10 September 2008, Mr Young returned to Bird Cameron a copy of, relevantly, its letter of instruction dated 7 February 2007 and the documents enclosed with that letter. The documents returned by Mr Young did not include a draft trial balance for the Family Trust but did include a balance sheet for the Family Trust as at 30 June 2006. The primary judge was satisfied that the balance sheet was the financial document enclosed with the letter dated 7 February 2007 [68].

93 The balance sheet for the Family Trust as at 30 June 2006 recorded that the Family Trust had liabilities of $1,994,785. These liabilities were described as 'Beneficiaries' Loans'. Amounts of $1,286 each were recorded as owing to AE Murray, AJ Murray, NJ Murray, SF Santacaterina and GI Santacaterina (who the primary judge inferred were the children of Maria and Luciana). The balance comprised an amount of $1,917,546 owing to Abrugiato and $67,836 to 'F & S Abrugiato' (that is, Mr and Mrs Abrugiato) [69].

94 Mr Young prepared three documents pursuant to the instructions from Bird Cameron. They comprised:

(c) a deed of appointment of successor appointors and guardians [70].

95 By letter dated 16 March 2007, Mr Young provided drafts of the deeds to Bird Cameron [71].

96 Subsequently, Mr Groves instructed Michael Frampton, a solicitor, to prepare land transfer forms to give effect to the trust splitting arrangement and to prepare a will for Mrs Abrugiato [71].

97 Mr Groves and Ms Haines reviewed the draft deeds to confirm they accorded with the instructions given to Mr Young [79].

98 Later, in May 2007, Mr Young made some amendments to the draft deeds to vary the names of the new trust funds [80].

99 Mr Young was not called as a witness at the trial.

Issues 1, 10 and 11: the primary judge's findings: the 13 June 2007 meeting

100 The Deed of Variation, the Deed of Separation and Mrs Abrugiato's will were executed on 13 June 2007 at a meeting held at Mrs Abrugiato's residence [81].

101 By 13 June 2007, Mrs Abrugiato was legally blind. The primary judge accepted that 'some care' was taken by Mr Groves and Mr Frampton to ensure she understood the contents of the documents to be executed [82].

102 His Honour said the possibility the schedule to the Deed of Separation was read or explained to Mrs Abrugiato could not be 'discounted'. However, his Honour did not consider 'the evidence permits a positive finding to that effect or, conversely, a finding that the schedule was not read or explained or that Mrs Abrugiato made no inquiries about how the liabilities of the Family Trust were to be treated in the deed'. His Honour found the evidence did not establish whether or not the schedule was read or explained or the allocation of the Family Trust's liabilities was discussed at the meeting [89].

Issues 1, 10 and 11: the primary judge's findings: Mrs Abrugiato's will

(a) the real estate she owned to Roberto and Luciana as contemplated by the Succession Plan and the Final Asset Allocation, in addition to the property referred to in the Deed of Separation;

(b) Mirella, Maria and Morena control over the Family Trust and the Family Trust Fund, subject to the Deed of Separation (that is, Mirella, Maria and Morena were given control over the Roma Fund); and

(c) Roberto and Luciana control over the Roberto Abrugiato Fund and the Luciana Santacaterina Fund respectively [91].

Issues 1, 10 and 11: the trial judge's findings: implementing the dividend payment plan

104 On 5 September 2007, there was a meeting or telephone conference between Mr Hansen and Mr Groves to discuss, relevantly, the 'splitting' of the balance sheet for the Family Trust following the execution of the Deed of Separation [96].

105 Mr Groves made a note of the discussion. It stated:

(a) a half share of the property at 9 High Street was to be transferred to each of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund; and

(b) 'balance of trust assets and liabs [sic] remain in Roma Fund' [96].

106 Mr Groves gave evidence the note recorded matters about which he had informed Mr Hansen during the discussion on 5 September 2007. However, Mr Hansen gave evidence he had no recollection of having been told in this discussion that the assets and liabilities of the Family Trust, apart from 9 High Street, were to remain with the Roma Fund [96].

107 His Honour observed there was no suggestion in the evidence that the statement recorded by Mr Groves to the effect that the balance of the liabilities of the Family Trust were to remain with the Roma Fund did not accord with his understanding, at the time of his discussion with Mr Hansen, of the effect of the Deed of Separation [97].

108 Mr Groves made a file note on the day after his discussion with Mr Hansen. The note was headed, 'What needs to be done to complete our succession task?'. The note stated that the matters to be completed included 'the strategy of paying franked dividends from Abrugiato P/L to Mrs Abrugiato to reduce its retained earnings needs to be commenced by [Mr Hansen]'. The note also stated that 'F & S Abrugiato Family Trust's loan from Abrugiato Pty Ltd is to be repaid over time with the funds used by the company to pay the above dividends. This then reducing the Trust's liabilities' [98].

109 It was not in issue at the trial that, as at 6 September 2007, the dividend payment plan had not been implemented [98].

Issues 1, 10 and 11: the primary judge's findings: the '2007' resolutions

110 An annual general meeting of Abrugiato was held on 4 February 2008. On 30 January 2008, Ms Haines of Bird Cameron sent an email to Mrs Abrugiato attaching documents to be signed before the general meeting. The documents included two draft resolutions declaring dividends to be made by Mrs Abrugiato as governing director of Abrugiato. The email was sent on Mr Hansen's instructions [99].

111 The draft resolutions sent on 30 January 2008 were purportedly for resolutions made on 28 June 2007 and 3 July 2007. Between 30 January 2008 and 4 February 2008, Mrs Abrugiato signed the resolutions.

112 By the resolution purportedly made on 28 June 2007, Mrs Abrugiato as governing director of Abrugiato resolved that, pursuant to powers contained in Abrugiato's articles of association, a dividend of $400,000 be paid to 'B' class shareholders. She also resolved that 'all necessary documents be signed to execute this dividend and allocate this dividend as a reduction to the Undrawn Beneficiary Entitlement receivable from [the Family Trust]' [101]. At all material times, Mrs Abrugiato was the sole 'B' class shareholder in Abrugiato.

113 The resolution purportedly made on 3 July 2007 was identical to the resolution purportedly made on 28 June 2007 [102].

Issues 1, 10 and 11: the primary judge's findings: the 4 April 2008 resolutions and letters

114 On 4 April 2008, Mrs Abrugiato as governing director of Abrugiato resolved that a fully franked dividend of $1,085,891 be paid to her on that day as a 'B' class shareholder in Abrugiato [108].

115 The amount of $1,085,891 represented the balance of the retained earnings/undrawn beneficiary entitlement recorded in Abrugiato's accounts [109].

116 Although the dividend payment plan contemplated that the retained earnings/undrawn beneficiary entitlement would be paid over a period of five years, by April 2008 Mrs Abrugiato's health had deteriorated and she was concerned she would not survive for the remainder of the period [109].

(a) Mrs Abrugiato signed a letter addressed to the directors of Abrugiato. In the letter, Mrs Abrugiato referred to the fully franked dividend declared on 4 April 2008 and said she 'would like you to offset this dividend to the [Family Trust] loan'.

(b) Mrs Abrugiato signed three other letters addressed to the directors of Franknelly, Abruzzi and Ortana respectively. The letters said that Mrs Abrugiato 'gifted amounts to the Roma Fund ($651,534.60), the Roberto Abrugiato Fund ($217,178.20) and the Luciana Santacaterina Fund ($217,178.20)'. Each letter also said that 'to satisfy this gift, instructions have been issued to Abrugiato Pty Ltd ... to offset your loan account with a dividend declared to me on 4 April 2008'.

(c) Meetings of the directors of Franknelly, Abruzzi and Ortana were held at which the letters signed by Mrs Abrugiato were tabled and the gifts recorded in the letters were acknowledged [110].

Issues 1, 10 and 11: the primary judge's findings: the 'gifts'

118 The dividend payment plan required that funds provided by Mrs Abrugiato to the Family Trust be applied in reducing the loan owed by the Family Trust to Abrugiato, rather than creating an additional liability in the Family Trust to Mrs Abrugiato. This purpose was to be achieved by Mrs Abrugiato making gifts to the Family Trust of the dividend payments she received from Abrugiato. However, the primary judge found there was no record made of any gifts by Mrs Abrugiato to the Family Trust of the dividends purportedly declared by the '28 June 2007' and '3 July 2007' resolutions [115].

119 The letters signed by Mrs Abrugiato on 4 April 2008 made provision for gifts by Mrs Abrugiato to Franknelly as trustee of the Roma Trust, Abruzzi as trustee of the Roberto Abrugiato Fund and Ortana as trustee of the Luciana Santacaterina Fund. The total amount of the gifts, being the total amount of the dividend declared by Abrugiato, was divided as to three-fifths to the Roma Fund and one-fifth to each of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund. Mr Hansen prepared the letters. Plainly, they reflected a view that the burden of the liability of the Family Trust to Abrugiato had been allocated in those proportions between the three funds [116].

Issues 1, 10 and 11: the primary judge's findings: the 'meeting' of 28 April 2008

120 The primary judge provisionally received in evidence three documents which suggested a further general meeting of Abrugiato was held on 28 April 2008 for the purpose of passing a resolution to ratify the dividends previously declared and paid pursuant to the '28 June 2007', '3 July 2007' and 4 April 2008 resolutions. Franknelly, Mirella, Maria and Morena tendered the documents, but not for the purpose of establishing that the dividend declarations and payments were valid. Rather, they tendered the documents as evidence of intention relevant to Franknelly's claim for rectification of the Deed of Separation.

121 Mr Hansen was the only person who attended the general meeting in person. Minutes of the meeting recorded that he held proxies given by Mrs Abrugiato, Mirella, Maria and Morena. His Honour found there was no evidence of the circumstances surrounding the meeting (other than, by inference, that it was prompted by advice from Bird Cameron as to the effect of Abrugiato's articles of association) or the giving of the proxies. His Honour concluded:

I did not consider that the documents assisted in determining Mrs Abrugiato's intentions at the time that the Deed of Separation was made in the absence of further evidence about those circumstances. That conclusion was reinforced by the matters referred to immediately below concerning the circumstances in which the dividend declaration resolutions and the gift letters dated 4 April 2008 were signed by Mrs Abrugiato [118].

Issues 1, 10 and 11: the primary judge's findings: the evidence about the dividend declaration resolutions and the gift letters

122 Franknelly, Mirella, Maria and Morena relied on the resolutions purportedly declaring dividends and the gift letters dated 4 April 2008 as evidence of Mrs Abrugiato's intention to divide the liabilities of the Family Trust equally between the children; that is, one-fifth to the Roberto Abrugiato Fund, one-fifth to the Luciana Santacaterina Fund and three-fifths to the Roma Fund created by the Deed of Separation [120].

123 However, the primary judge found there was scant evidence of the circumstances in which Mrs Abrugiato signed those documents. In particular, there was no evidence the resolutions were ever read or explained to Mrs Abrugiato who was, by this time, legally blind [120].

124 His Honour observed that the dividend resolutions, the gift letters and the meetings of the directors of Franknelly, Abruzzi and Ortana were matters that occurred some time after the execution of the Deed of Separation. His Honour then made these findings:

I did not consider that an inference could be drawn from those documents that they reflected an intention held by Mrs Abrugiato about the contents and effect of the Deed of Separation at the time that the deed was made. I make that finding having regard to the lack of evidence about Mrs Abrugiato's understanding of the resolutions and gift letters and what actually occurred at the time that the documents were signed. It was not possible to say whether she regarded the resolutions and letters as implementing what she had intended by the Deed of Separation. As counsel for [Roberto and Luciana] observed, the documents signed on 4 April 2008 stood 'in splendid isolation' [122].

Issues 1, 10 and 11: the primary judge's findings: the validity of the dividend declaration resolutions and the gifts

125 The primary judge found that the resolutions supposedly made on 28 June 2007 and 3 July 2007 were not made on those dates, but were made some time between 30 January 2008 and 4 February 2008. His Honour also found that those resolutions, and the resolution purportedly made on 4 April 2008, were ineffective to declare and pay dividends to Mrs Abrugiato. The declarations could only have been made by the company in general meeting [218].

126 Those findings are not challenged by Franknelly in the appeal.

127 At trial, the parties accepted that the gifts stated to have been made by the letters dated 4 April 2008 must fail if the dividend declaration resolution made on that date was invalid. His Honour made a declaration to that effect [225].

128 The declaration is not challenged by Franknelly in the appeal.

Issues 1, 10 and 11: the primary judge's findings: Mrs Abrugiato's intentions

129 At trial, there was substantial evidence to the effect that Mrs Abrugiato wanted her estate to be divided equally between her children. It was not in dispute that Mrs Abrugiato meant, by an equal division of her estate, that, at least, the assets she owned or controlled would be distributed 'as equally as possible' between her children. The critical issue concerned Mrs Abrugiato's intentions in relation to the liabilities of the Family Trust to Abrugiato and Mr and Mrs Abrugiato [134].

130 As at 30 June 2006, the liabilities of the Family Trust for 'Beneficiaries Entitlements' or 'Beneficiaries Loans' included $1,917,546 owing to Abrugiato and $67,836 owing to Mr and Mrs Abrugiato.

131 The primary judge reviewed the evidence in relation to Mrs Abrugiato's intentions including evidence given by Mirella, Maria, Morena, Mr Ivanac and Mr Hansen [135] - [160].

132 As to Mr Ivanac, his Honour concluded from the whole of his evidence that, by the time of the trial, Mr Ivanac had no independent and reliable recollection of statements made by or to Mrs Abrugiato at the various meetings in which he participated or of the advice and explanations given to her about the proposals set out in the Succession Plan [153]. His Honour found the best evidence of Mr Ivanac's account of what occurred at those meetings was contained in his contemporaneous notes [153].

133 The primary judge found that all of the matters recorded in Mr Ivanac's contemporaneous notes of the instructions given by Mrs Abrugiato at the meeting on 17 November 2006 were ultimately reflected in Mrs Abrugiato's will and the Deed of Separation. Mr Ivanac's contemporaneous notes of that meeting made no reference to the estate's liabilities or the Family Trust's liabilities [158].

134 As to Mr Hansen, his Honour concluded from the whole of his evidence that Mr Hansen had only a very general recollection, by the time of the trial, of what had occurred at the various meetings [159].

135 Mr Hansen gave evidence he recalled Mrs Abrugiato saying at those meetings that her succession plan objective was to treat each of her children equally. According to Mr Hansen, her objectives were 'all about fairness and equity between the five children' [160].

136 After reviewing the evidence, the primary judge made these findings:

No evidence was given about the context in which Mrs Abrugiato made the statements that she was said to have made about the liabilities of the estate and it was difficult to ascertain what she might have meant by the statements attributed to her. Consequently, it was not possible to determine what Mrs Abrugiato understood about the liabilities of the Family Trust, the effect of the dividend payment plan and the impact of that plan on the distribution of her estate other than by reference to the advice and recommendations contained in the succession plan. Those difficulties were compounded by the use of the expression 'my mother's wishes' as a defined term in the witness statements to provide evidence about what instructions were given by Mrs Abrugiato to Bird Cameron and what advice was conveyed by Mr Ivanac and Mr Hansen. Evidence to the effect that statements were made that the succession plan reflected 'my mother's wishes' did not assist in clarifying the differences between [Mirella, Maria and Morena] on the instructions given and the advice received by Mrs Abrugiato. In effect, different and unreconciled versions of what occurred at the meetings were being given by the use of the expression [163].

Issues 1, 10 and 11: the primary judge's findings: Mrs Abrugiato's knowledge and intention about the dividend payment plan

137 At trial, it was not in issue that the liabilities of the Family Trust to Abrugiato and Mr and Mrs Abrugiato were to be discharged over time as part of the dividend payment plan. Also, Mrs Abrugiato's knowledge of the plan and its purpose were not in issue [165].

138 The primary judge found that Mrs Abrugiato understood, by the time she approved the Succession Plan at the meetings on 13 [sic: 14] September 2006 and 17 November 2006, and, therefore, well before the execution of the Deed of Separation, that a programme of declaring dividends and using the dividends to discharge the liabilities of the Family Trust to Abrugiato and Mr and Mrs Abrugiato would be implemented over a period of five years [166].

Issues 1, 10 and 11: the primary judge's findings: three important contextual matters

139 The primary judge said three matters provided important context for considering the contentions of Franknelly, Mirella, Maria and Morena as to the proper construction of the Deed of Separation and Franknelly's alternative contention as to rectification. His Honour said these matters were relevant to ascertaining Mrs Abrugiato's 'objective and subjective intentions' and, also, to understanding the genesis of the disputes between her children. The three matters identified by his Honour were these:

(a) the extent to which the distribution of assets and the allocation of liabilities under the Deed of Separation resulted in 'approximate equality' between Mrs Abrugiato's children;

(b) the intended effect of the dividend payment plan on the liabilities of the Family Trust; and

(c) the time within which it was intended that the dividend payment plan would be implemented [167].

140 As to the extent to which the distribution of assets and the allocation of liabilities under the Deed of Separation resulted in 'approximate equality' between Mrs Abrugiato's children, Roberto and Luciana submitted to the primary judge that the distribution of assets and the allocation of liabilities under the Deed of Separation 'more equally distributed Mrs Abrugiato's estate than if the liabilities were allocated in the manner for which [Franknelly, Mirella, Maria and Morena] contended' [168]. His Honour set out the tables by reference to which that submission was made [168]:

Gross value of assets allocated by the Deed of Separation

Gross value of assets allocated by the Deed of Separation

Net value of assets allocated by the Deed of Separation

Gross value of assets allocated by the Deed of Separation

Net value of assets allocated by the Deed of Separation

Gross value of assets allocated by the Deed of Separation

Net value of assets allocated by the Deed of Separation

141 The primary judge then noted that if the liabilities of the Roma Fund, being $1,988,908, were allocated in the proportions of 20:20:60, the position would be as follows [169]:

Gross value of assets allocated by the Deed of Separation

Net value of assets allocated by the Deed of Separation

Gross value of assets allocated by the Deed of Separation

Net value of assets allocated by the Appointment Deed

Gross value of assets allocated by the Deed of Separation

Net value of assets allocated by the Deed of Separation

142 His Honour said Roberto and Luciana had compiled the tables solely for the purpose of demonstrating that re-allocating the liabilities of the Family Trust in the manner indicated 'exacerbated an inequality in the distribution of the [Family Trust's] assets and liabilities' [170].

143 His Honour found that the distribution of Mrs Abrugiato's estate as a whole, according to the various scenarios that were relevant, would be as follows:

(a) As for the final asset allocation if the liabilities of the Family Trust had been eliminated - according to that allocation, [Mirella, Maria and Morena] each received assets valued at approximately $300,000 more than the assets to be received by [Roberto] and [Luciana]. Further, the 'evening up of that inequality' to which Mr Ivanac [of Bird Cameron] referred in his letter of 10 October 2006 did not occur in the way that Mrs Abrugiato had indicated at that time. The residue of her estate was left equally between all of her children.

(b) An allocation in favour of [Roberto] and [Luciana] if the Roma Fund carried all of the liabilities that had been allocated to it and the dividend payment plan was not implemented:

(i) [Mirella, Maria and Morena] would receive net assets with a total value of value of $4,454,809 or $1,484,936 each from the Family Trust. They would also receive a share in 7 High Street ($260,000 each) and 6 Hillside Road ($440,000 each), a total allocation of assets valued at $2,184,936.

(ii) [Roberto] and [Luciana] would each receive assets with a total value of $2,460,000 (shares in 2 and 4 Tuckfield Street (a total of $410,000 each), a share in 7 High Street ($260,000), a share in 9 High Street ($1,250,000), a share in 6 Hillside Road ($440,000) and the Italian property ($100,000).

(c) An allocation as follows if the Family Trust's liabilities were redistributed in the manner for which [Mirella, Maria and Morena] contended and the dividend payment plan was not implemented:

(i) [Mirella, Maria and Morena] would each receive assets with a value of $2,250,124 [sic: $2,450,124] (net Family Trust assets of $5,250,373 ÷ 3 = $1,750,124 + $260,000 + $440,000);

(ii) [Roberto] and [Luciana] would receive assets with a value of $2,062,219 (net Family Trust assets of $852,219 + $410,000 + $260,000 + $440,000 + $100,000) [170].

144 As to the intended effect of the dividend payment plan on the liabilities of the Family Trust, the purpose of the dividend payment plan was to eliminate the liabilities of the Family Trust and the retained earnings in Abrugiato [171].

(a) the focus of discussions between Mrs Abrugiato and representatives of Bird Cameron was the assets of her estate (that is, the assets she owned or controlled);

(b) it would not have been necessary to provide for an equal allocation of the liabilities to achieve a fair and equitable distribution of Mrs Abrugiato's estate between her children because those liabilities were to be eliminated under the dividend payment plan; and

(c) on completion of the dividend payment plan, the Family Trust (substantially in the form of the Roma Fund) would hold significant assets without any substantial liabilities [171].

146 His Honour also found, similarly, that the retained earnings in Abrugiato (with their associated taxation implications) would have been eliminated so Abrugiato would hold significant assets without any substantial liabilities [172].

147 On completion of the dividend payment plan, the affairs of the Family Trust, on the one hand, and those of Abrugiato, on the other, would have been separated, thereby facilitating Mirella, Maria and Morena taking through the Family Trust their share of assets owned or controlled by Mrs Abrugiato.

148 The primary judge reiterated that the dividend payment plan, and the elimination of the liabilities of the Family Trust, were to occur over a period of five years so as to ameliorate the taxation implications of paying dividends to Mrs Abrugiato. However, by April 2008 Mrs Abrugiato was concerned about her health. There was no evidence to suggest she had this concern when the Succession Plan was agreed upon or when the Deed of Separation was executed. Mrs Abrugiato's death within the five-year period created 'an unforeseen consequence' in that a contrary assumption had been made under the Succession Plan [173].

149 His Honour made the following findings in relation to the three matters of context relevant in considering the contentions as to the proper construction of the Deed of Separation and the alternative contentions as to rectification:

(a) the effect of Mrs Abrugiato's death was to crystallise the liabilities owing by the Family Trust to Abrugiato and Mr and Mrs Abrugiato;

(b) the dividend payment plan could no longer be implemented to eliminate those liabilities;

(c) the liabilities would have already been eliminated if the dividend declaration resolutions had been effective;

(d) however, the liabilities would remain if those resolutions were invalid;

(e) consequently, the claims of Franknelly, Mirella, Maria and Morena were made in circumstances where the Roma Fund would not have been burdened with any obligation in respect of the Family Trust's liabilities if the dividend payment plan had run its course or if the dividend declaration resolutions had been valid;

(f) further, different outcomes resulted from making various assumptions about the allocation of the liabilities of the Family Trust;

(g) those different outcomes illustrated that Mrs Abrugiato's intentions were founded on an assumption that the liabilities would be eliminated by the dividend payment plan; and

(h) those different outcomes also highlighted that the source of the disputes between the parties lay in the 'possible failure of [the dividend payment plan]' [174] - [175].

Issues 1, 10 and 11: the primary judge's findings: Mrs Abrugiato's intentions in relation to the distribution of her estate

150 The primary judge made the following findings about Mrs Abrugiato's intentions in relation to the distribution of her estate (that is, the assets she owned or controlled) between her children:

(a) It was plain that Mrs Abrugiato was concerned to ensure that her children were treated equally in the division of her estate. I have no doubt that this reflected the natural desire of a parent. However, I consider that it may have been reinforced by her concern that the distribution of her estate should not cause further disputes among her children. That was reflected, for example, in [Maria's] evidence that Mrs Abrugiato did not want money to be owed between her children following the distribution of her estate.

(b) There was no issue between the parties that Mrs Abrugiato wished to treat her children fairly and equitably. However, the absence of controversy should not marginalise the significance of this aspect of Mrs Abrugiato's intentions. This was, in my view, Mrs Abrugiato's primary intention; more specific intentions were subordinate to the overriding objective of equality in the distribution of the estate.

(c) The succession plan focused on the assets under Mrs Abrugiato's control. The reason for that was obvious: it was the estate's assets that Mrs Abrugiato wished to distribute and leave to her children. I accept Mr Hansen's evidence that discussions with Mrs Abrugiato focused on the estate's assets.

(d) Consistent with the testamentary nature of the succession plan, Mrs Abrugiato wished to eliminate the estate's liabilities during her lifetime so that the gifts to her children would be unaffected by those liabilities. Eliminating the liabilities from the estate was consistent with the objectives and concerns held by Mrs Abrugiato. The dividend payment plan provided the means by which the liabilities could be eliminated. The receivables represented by the loans made to the Family Trust by Abrugiato and Mr and Mrs Abrugiato (or by the undistributed entitlements of Abrugiato and Mr and Mrs Abrugiato) could not be sensibly regarded as assets to be divided among Mrs Abrugiato's children given that the corresponding liability rested with the Family Trust. I accept that Mrs Abrugiato appreciated that fact from the succession plan and her discussions with Mr Ivanac [of Bird Cameron] and Mr Hansen about the plan.

(e) It follows that the liabilities of the Family Trust must have been discussed in the meetings held in 2006 between Mrs Abrugiato and Mr Ivanac [of Bird Cameron] and Mr Hansen. However, the evidence as to what was discussed about the liabilities was vague and equivocal apart from what appeared in the succession plan.

(f) I accept that Mrs Abrugiato appreciated that the purpose of the dividend payment plan was to eliminate the liabilities of the Family Trust using the retained earnings in Abrugiato and that she intended that this should occur by implementing the plan [176].

151 However, his Honour held the evidence did not permit a further finding to be made that Mrs Abrugiato formed an actual intention that the liabilities of the Family Trust to Abrugiato, Mr Abrugiato and herself should be allocated under the Deed of Separation as to one-fifth to each of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund and as to three-fifths to the Roma Fund, or by some other means [177]. His Honour explained:

The evidence of Mrs Abrugiato's intentions regarding the trust's liabilities was too vague and equivocal beyond whatever could be inferred from her adoption of the succession plan and the findings made above. That was especially [so] when the analysis of the different asset allocation scenarios undertaken earlier in the reasons was considered. They demonstrated different outcomes according to the assumptions that were made and suggested that Mrs Abrugiato's intentions may well have been as apparently provided for in the Deed of Separation and her will on the assumption that the dividend payment plan was successfully implemented to eliminate the liabilities of the Family Trust by the time that her children acquired control of the trust funds. The events that occurred after the making of the Deed of Separation did not assist in determining Mrs Abrugiato's intentions in relation to the content and effect of the deed at the time that it was made for the reasons that have already been given [177].

152 The primary judge added that Mrs Abrugiato could have (and, indeed, did) change her instructions from time to time to Bird Cameron. It was her intention when the Deed of Separation was executed that was relevant, and not necessarily what may have been said at various meetings some time earlier [178].

Issues 10 and 11: the primary judge's findings: the proper construction of the Deed of Separation

153 Franknelly, Mirella, Maria and Morena submitted at trial that the object and purpose of the Deed of Separation was to divide the assets of the Family Trust approximately equally, and to divide the liabilities of the Family Trust equally, between the children.

The Deed stated and contemplated that the trustee of the Roberto Fund would assume liability for payment of 'amounts' specified in item 7.2 of the Schedule to the Deed (recital C) and that the trustee of the Luciana Fund would assume liability for payment of those amounts due to or set aside for the beneficiaries of that trust as are specified in item 8.2 of the Schedule to the Deed (recital D). However, in the case of the Roberto Fund item 7.2 of the Schedule did not specify any liability for the payment of any amount and in the case of the Luciana Fund the only liability assumed was in respect of two sums of $1,286 to members of Santacaterina's family.

That inconsistency can be cured by adding the omitted words to achieve an equal apportionment of liabilities between the five children by a process of construction [181].

155 His Honour rejected these contentions. He held:

(a) There was no discernible inconsistency between recitals C and D, on the one hand, and cls 7.2 and 8.2 and items 7.2 and 8.2, on the other.

(b) The fact that recital C refers to 'amounts' and item 7.2 specifies a nil amount was not an inconsistency that revealed 'something had gone wrong' in the manner in which Mrs Abrugiato's objectively determined intention had been expressed.

(c) Clause 7.2 and item 7.2 'simply reflected the particular drafting technique' used by the draftsman.

(d) The three matters of context, referred to above, considered with the dividend payment plan, indicated that the provisions of the Deed of Separation were not 'absurd', but were consistent with 'the general objectives stated in the Succession Plan that the distribution of Mrs Abrugiato's estate between her children should be fair and equitable' [185].

156 According to the primary judge, the evidence did not disclose that Mrs Abrugiato's objectively determined intention was to divide the liabilities of the Family Trust equally between her children. Further, his Honour found the apparent effect of the allocation of the assets under Mrs Abrugiato's ownership or control was, as far as possible, 'to separate out the assets given to [Roberto] and [Luciana] from those given to [Mirella, Maria and Morena]' [186].

157 His Honour said it was 'objectively reasonable that the assets of the Family Trust, apart from those specifically connected with [Luciana's family], should be allocated to the Roma fund' [187]. His Honour added:

Indeed, the question that arises is why the liabilities would have been allocated differently given that they were to be eliminated by the dividend payment plan. Allocating the liabilities across the three trusts would have added a further step in the implementation of the plan for no apparent reason (on the assumption that had been made that the plan would be fully implemented) [187].

(a) The wording and effect of items 7.2 and 8.2 were 'clear'.

(b) Franknelly, Mirella, Maria and Morena had sought to construe the Deed of Separation so as to re-write those items to produce a significantly different result.

(c) The 'very difference in the wording of the items from that for which [Franknelly, Mirella, Maria and Morena contend] counts against Mrs Abrugiato holding the objective intention alleged by [them]' [188].

Issue 1: the primary judge's findings: the rectification claim

159 The Succession Plan made provision for the disposition of the assets owned or controlled by Mrs Abrugiato. The Deed of Separation was a significant step in the implementation of the plan. It was Mrs Abrugiato's intention that was to be recorded in the Deed of Separation [194].

160 The primary judge was not satisfied, on the balance of probabilities, that the evidence at trial established that the Deed of Separation failed to record Mrs Abrugiato's actual intention as to the allocation of the Family Trust's liabilities. In particular, his Honour was not persuaded that Mrs Abrugiato intended by the Deed of Separation that the Family Trust's liabilities would be allocated equally between her children in the manner alleged by Franknelly, Mirella, Maria and Morena [195].

First, I was left with the impression from the whole of the evidence that [Franknelly's] claim was to rectify the Deed of Separation to accommodate events that had occurred since the deed was made and which were 'unforeseen': the death of Mrs Abrugiato within the five-year period contemplated by the dividend payment plan and the alleged invalidity of the dividend declaration and payment resolutions made by Mrs Abrugiato. In my view, Mrs Abrugiato's primary intention in relation to the Family Trust's liabilities was to adopt and implement the dividend payment plan. As has already been noted, [Franknelly, Mirella, Maria and Morena] would have had no complaint about the effect of the Deed of Separation had the plan been fully and properly implemented. That did not mean that the deed necessarily gave effect to Mrs Abrugiato's actual intentions (that would be to reason backwards from one outcome). However, the Deed of Separation was, in my view, made on the assumption that the dividend payment plan would be effectively and completely implemented ...

Second, [Franknelly, Mirella, Maria and Morena] sought to emphasise that, on their case, the Schedule to the Deed of Separation was not read or explained to and discussed with Mrs Abrugiato. I have concluded that I was not satisfied by the evidence that Mrs Abrugiato held the intentions alleged by [Franknelly, Mirella, Maria and Morena]. I have also held that I could not make a finding on the evidence about whether the allocation of the Family Trust's liabilities under the Deed of Separation was explained to or discussed with Mrs Abrugiato [at] the meeting held on 13 June 2007. [Franknelly, Mirella, Maria and Morena] carried the onus of establishing that the Schedule and the allocation were not considered at the meeting to the extent that they relied on an allegation to that effect as part of the rectification and fraud on a power pleas [196] - [197].

Issue 8: the primary judge findings: the indemnity claim

162 Franknelly, Mirella, Maria and Morena contended at trial that:

(a) The Family Trust's liabilities to Abrugiato and Mr and Mrs Abrugiato were liabilities properly incurred by Franknelly as trustee of the Family Trust and in respect of which it was entitled to be indemnified up to and as at the time the Deed of Separation was executed.

(b) Franknelly's right of indemnity was secured by an equitable lien or charge over the Family Trust Fund. Franknelly's right and security was not destroyed or modified by the Deed of Separation. Rather, each fund created by the deed took its assets subject to Franknelly's right and security [226].

163 The primary judge held the Deed of Separation had the following effect:

(a) Abruzzi and Ortana were appointed successor trustees to Franknelly of that part of the Family Trust Fund specified in items 7.1 and 8.1 of the schedule.

(b) Franknelly agreed to relinquish its right of indemnity from, and its proprietary interest in, the assets to which Abruzzi and Ortana were appointed as trustees in consideration of Abruzzi and Ortana assuming liability for, and indemnifying Franknelly in respect of, the liabilities specified in items 7.2 and 8.2.

(c) Otherwise, Franknelly retained its right of indemnity out of the Roma Fund [230].

164 In other words, his Honour concluded that Franknelly's security interest was modified by agreement between itself, as the outgoing trustee, and Abruzzi and Ortana, as the incoming trustees, of parts of the Family Trust Fund [231].

165 The primary judge rejected the contention of Franknelly, Mirella, Maria and Morena to the effect that 'Franknelly could only lose its right of indemnity to a purchaser of the trust's assets in good faith for value and without notice of its equitable interest' [232]. His Honour referred to a discussion in HAJ Ford and WA Lee, Principles of the Law of Trusts (looseleaf) [14.3930], and said:

I can see no reason why effect should not be given to the Deed of Separation according to its terms. None of the reasons given in Principles of the Law of Trusts for why the right of indemnity might be incapable of being excluded by a trust instrument apply in this instance. Franknelly was removed as trustee of part of the Trust Fund and new trustees were appointed; Ortana assumed liability for certain liabilities previously owed by Franknelly and Franknelly retained the right to be indemnified out of the trust property over which it remained trustee. The retention by Franknelly of an equitable charge or lien over the assets specified in items 7.1 and 8.1 of the Schedule would be inconsistent with the parties' express intentions and any presumed obligation in equity [234].

The primary judge's determination of Issues 1, 8, 10 and 11

166 The primary judge determined Issues 1, 8, 10 and 11, as follows.

167 As to Issue 1, his Honour held that Franknelly as trustee of the Family Trust had failed to establish it was necessary to rectify the Deed of Separation to record Mrs Abrugiato's actual intention [239(a)].

168 As to Issue 8, his Honour held that Franknelly as trustee of the Family Trust was not entitled to be indemnified out of the assets of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund for its liabilities to Abrugiato and Mr and Mrs Abrugiato [239(g)].

The Roberto Abrugiato fund and the Luciana Santacaterina fund are not each liable for one-fifth of the debts and liabilities of Franknelly as trustee of the Family Trust and the funds have not undertaken to indemnify Franknelly as trustee of the Roma fund for one-fifth each of its liabilities incurred as trustee of the Family Trust or in any other capacity. The funds are each liable for the debts and liabilities recorded in items 7.2 and 8.2 respectively of the Schedule to the Deed of Separation [239(i)].

(a) in concluding the evidence did not permit a finding that Mrs Abrugiato formed an actual intention that the Family Trust's liabilities to Abrugiato and Mr and Mrs Abrugiato 'should be distributed equally between her five children' under the Deed of Separation 'by allocating the liabilities of the Trust one-fifth each to the Roberto Abrugiato Fund and the Luciana Santacaterina Fund and three-fifths to the Roma Fund';

(b) in failing to rectify the Deed of Separation to give effect to this intention of Mrs Abrugiato; and

(c) in failing to allocate the liabilities of the Family Trust one-fifth each to the Roberto Abrugiato Fund and the Luciana Santacaterina Fund and three-fifths to the Roma Fund.

(a) Mrs Abrugiato's intention could be gleaned from, but was not confined to the succession plan, it was also evidenced by her dealings with the drafters of the succession plan, her conduct in making a dividend resolution and gifts to the Roma Fund, the Roberto Abrugiato Fund and the Luciana Santacaterina Fund on 4 April 2008, in respect of which resolution and gifts the learned trial judge erred in fact in finding were not explained to Mrs Abrugiato, and from the contents of the Deed;

(b) the learned trial judge 'especially' had regard to an analysis of different asset allocation scenarios which were irrelevant and if they were relevant militated in favour of rectification of the Deed;

(c) the learned trial judge concluded that imposing all the liabilities on the Roma Fund was the result of an unforeseen event, being the death of Mrs Abrugiato, which was inconsistent with his own findings and the evidence that Mrs Abrugiato intended that the liabilities of the Trust would be discharged during her lifetime and because of her ill health she escalated the implementation of the dividend payment plan so that the liabilities of the Trust would be discharged during her lifetime, including by the making of the dividend resolution and gifts to the three funds in the proportions one-fifth each to the Roberto Abrugiato Fund and the Luciana Santacaterina Fund and three fifths to the Roma Fund;

(d) the learned trial judge failed to make a finding that the specific allocation of liabilities in the Deed was not explained to Mrs Abrugiato and, in any case, in the absence of a finding that the Deed was read to Mrs Abrugiato, his other factual findings, and the matters in paragraph 1(a) above, the learned trial judge erred in failing to rectify the Deed.

173 Ground 2 alleges his Honour erred in concluding that Franknelly as trustee of the Family Trust was not entitled to be indemnified out of the assets of the Roberto Abrugiato Fund or the Luciana Santacaterina Fund for the Family Trust's liabilities to Abrugiato and Mr and Mrs Abrugiato and that the Roberto Abrugiato Fund and the Luciana Santacaterina Fund were not each liable for one-fifth of Franknelly's liabilities.

174 Counsel for Franknelly relied, in his oral submissions, on three matters in support of the allegation that the primary judge was in error in failing to conclude Mrs Abrugiato formed an actual intention that the Family Trust's liabilities should be distributed equally between her children under the Deed of Separation (appeal ts 4 - 5).

175 The three matters are as follows. First, 'what can be extracted from' the Succession Plan (appeal ts 4). Secondly, 'what can be extracted from' instructions given by Mrs Abrugiato to representatives of Bird Cameron at and after the meeting on 17 November 2006 (appeal ts 4). Thirdly, Mrs Abrugiato's conduct after 17 November 2006 in arranging for Abrugiato to declare dividends, and in making gifts herself to the Roberto Abrugiato Fund, the Luciana Santacaterina Fund and the Roma Fund (appeal ts 5).

Ground 1: rectification: applicable principles

176 The object of the equitable doctrine of rectification is to reform an instrument in which the parties have mistakenly expressed their agreement or common continuing intention. Equity may and does rectify instruments. It does not rectify contracts or transactions. See Mackenzie v Coulson (1869) LR 8 Eq 368, 375 (Sir William James VC).

177 Rectification corrects a disconformity between the agreement or common continuing intention of the parties, on the one hand, and the instrument, on the other, so that the instrument contains the provisions which the parties actually intended it to contain. See Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd [1919] HCA 18; (1919) 26 CLR 410, 427 (Isaacs J); Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; [1973] HCA 23; (1973) 128 CLR 336, 350 (Mason J, Menzies J agreeing); Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 346 (Mason J, Stephen J relevantly agreeing).

178 The mistakes which may be corrected by rectification include a mistake as to the effect (and not merely the form) of an instrument. See Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226, 235 (Kneipp J), 237 (Thomas J), 243 (Shepherdson J); Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365, 387 - 388 (Kennedy J); Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 343 - 344 (Sheller JA, Mahoney A-P agreeing); Davis v Federal Commissioner of Taxation [2000] FCA 44; (2000) 171 ALR 654 [57] (Hill J).

179 It must be emphasised, however, that rectification will not be available where the parties are merely mistaken as to the consequences of, or the advantages to be gained by, a contract or transaction recorded in an instrument. That is, equity will not grant rectification where a mistake by the parties relates only to the expected consequences or advantages of a contract or transaction, and not to the expression in the instrument of what the parties actually agreed or intended. See Gibbon v Mitchell [1990] 1 WLR 1304, 1309 (Millett J); Carlenka (341); Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374, 384 - 385 (Young J); Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] VSCA 2; (2001) 3 VR 526 [44] - [45] (Chernov JA); Baxter v Federal Commissioner of Taxation [2002] FCA 1256; (2002) 196 ALR 519 [26] (Gyles J).

180 Further, as Mahoney A-P observed in Carlenka, rectification will not be available to correct 'consequences which the parties did not have in their mind when the deed was executed even if, had they thought of them, they would have intended them' (332). Similarly, in Tucker v Bennett (1887) 38 Ch D 1, Lopes LJ said the court must look at the intention of the parties 'at the time when the deed was executed, and not what would have been their intent if, when they executed it, the result of what they did had been present to their minds' (16). See also Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976) 50 ALJR 769, 771 (Barwick CJ).

181 A person who seeks rectification must establish, by convincing proof, that an instrument does not embody the common continuing intention of the parties at the time when the instrument was executed. See Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447, 456, where Brennan J said:

Although the remedy of rectification is no longer held to depend upon proof of an antecendent concluded contract (Slee v Warke [1949] HCA 57; (1949), 86 CLR 271, at p 280; Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973), 128 CLR 336), it is necessary to show a concurrent intention of the parties, existing at the time when the written contract is executed, as to a term which would have been embodied in the contract if the parties had not made a mistake in expressing their intention. Proof of such an intention is necessary to 'displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties' (ibid, at p 351, per Mason J).

182 An inference as to the common continuing intention of the parties when an instrument was executed can be drawn from circumstances both before and after the execution of the instrument. See NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740, 752 (Clarke J); Anfrank Nominees (388). However, it is necessary to exercise caution in receiving evidence of a party's conduct after the execution of an instrument because this conduct may not relate to the party's intention before or at the time of execution, but only to a later intention which may be different. See NSW Medical Defence Union (752); Anfrank Nominees (388).

183 I am satisfied that as at 13 June 2007, when she executed the Deed of Separation, Mrs Abrugiato intended that:

(a) on her death, the assets she owned or controlled would be distributed (that is, be owned or controlled) 'as equally as possible' between her children; and

(b) by the time of her death, the liabilities of Franknelly as trustee of the Family Trust (and the Roma Fund) to Abrugiato and Mr and Mrs Abrugiato would be discharged.

184 As at 13 June 2007, when she executed the Deed of Separation, Mrs Abrugiato intended to achieve those objectives by:

(a) signing the will prepared for her by Mr Frampton;

(b) executing the Deed of Separation and the other deeds prepared by Mr Young;

(c) signing the land transfer forms prepared by Mr Frampton; and

(d) implementing the dividend payment plan over a period of five years.

185 In my opinion, the primary judge did not err as alleged by Franknelly in ground 1. My reasons are as follows.

186 First, rectification was not available unless there was a disconformity between Mrs Abrugiato's actual intention, as at 13 June 2007, about the manner in which the burden of the liabilities of the Family Trust should be allocated and borne under the Deed of Separation, on the one hand, and the provisions of the deed in relation to that issue, on the other. Equity may, in its discretion, rectify instruments. It does not rectify transactions.

187 Secondly, although Mrs Abrugiato intended, as at 13 June 2007, that by the time of her death the liabilities of Franknelly as trustee of the Family Trust (and the Roma Fund) to Abrugiato and Mr and Mrs Abrugiato would be discharged, the primary judge found (and the evidence supported his finding) that, as at 13 June 2007, Mrs Abrugiato intended that these liabilities would be discharged by the implementation of the dividend payment plan over a period of five years. Indeed, his Honour found (and the evidence supported his finding) that Mrs Abrugiato understood, by the time she approved the Succession Plan at the meetings on 14 September 2006 and 17 November 2006 (and, therefore, well before the execution of the Deed of Separation), that the liabilities in question would be discharged in that manner.

188 As at 13 June 2007, the dividend payment plan involved Abrugiato paying its retained earnings to Mrs Abrugiato by way of dividends over the five-year period. The length of the period was determined by taxation considerations. Mrs Abrugiato would, in turn, make gifts of the dividends to the Family Trust. The Family Trust would then apply the amount of the gifts in or towards discharging the debts it owed to Abrugiato and Mr and Mrs Abrugiato.

189 If the dividend payment plan had been fully implemented, as intended by Mrs Abrugiato as at 13 June 2007, the liabilities of the Family Trust to Abrugiato and Mr and Mrs Abrugiato would have been discharged within the five-year period.

190 Thirdly, the relevant intention of Mrs Abrugiato was her intention as at 13 June 2007, when the Deed of Separation was executed, and not what would have been her intention if, when she executed the deed, she had known that the dividend payment plan would not be fully implemented before her death. Rectification was not available to correct consequences, arising from the failure fully to implement the dividend payment plan, which Mrs Abrugiato did not have in her mind when the Deed of Separation was executed.

191 Fourthly, the primary judge found (and the evidence supported his finding) that Mr Groves and Mr Frampton took 'some care' at the meeting on 13 June 2007 to ensure Mrs Abrugiato understood the contents of the documents (including the Deed of Separation) to be executed at that meeting. Also, his Honour held the evidence did not permit a finding to be made that the schedule to the Deed of Separation was not read or explained to Mrs Abrugiato at the meeting on 13 June 2007 or that she made no inquiries at the meeting about how the liabilities of the Family Trust were dealt with under the deed. His Honour was entitled, on the evidence, to decline to make those findings.

192 Fifthly, by April 2008, Mrs Abrugiato's health had deteriorated. She was concerned she would not survive for the remainder of the five-year period. There was no evidence to suggest she had this concern as at 17 November 2006, when she in effect approved the Succession Plan, or as at 13 June 2007, when she executed the Deed of Separation. The deed was executed on the assumption the dividend payment plan would be fully implemented. His Honour correctly characterised Mrs Abrugiato's death, within the five-year period, as 'an unforeseen consequence' in that 'a contrary assumption' had been made under the Succession Plan [173].

193 Sixthly, although an inference as to Mrs Abrugiato's intention as at 13 June 2007, when she executed the Deed of Separation, can be drawn from circumstances both before and after the deed was executed, it is necessary to exercise caution in relation to her conduct after the execution of the deed because this conduct may not relate to her intention before or as at 13 June 2007, but only to a later intention which may have been different.

194 The primary judge's unchallenged finding was that the resolutions supposedly made on 28 June 2007 and 3 July 2007 were not in fact made until some time between 30 January 2008 and 4 February 2008.

(a) the dividend declaration resolutions made between 30 January 2008 and 4 February 2008 and the dividend declaration resolution made on 4 April 2008;

(c) the meeting held on 4 April 2008 and the 'meeting' of 28 April 2008,

were not probative of Mrs Abrugiato's actual intention as at 13 June 2007, when she executed the Deed of Separation, about the manner in which the burden of the liabilities of the Family Trust should be allocated and borne under the deed as between the three trusts.

196 This conclusion was justified by the following:

(a) there was scant evidence of the circumstances in which Mrs Abrugiato signed the dividend declaration resolutions and the gift letters; in particular, there was no evidence that the resolutions were read or explained to Mrs Abrugiato who was, as at 4 April 2008, legally blind;

(b) the resolutions were made, the gift letters were signed and the meetings occurred some time (about eight to 10 months) after the execution of the Deed of Separation; and

(c) in these circumstances, no inference could be drawn from the resolutions, letters or meetings as to Mrs Abrugiato's intention about the contents and effect of the Deed of Separation (in particular, about the liabilities of the Family Trust), as at 13 June 2007, when the deed was executed [120] - [122].

197 Seventhly, the primary judge concluded (and he was entitled to conclude) that it was not possible on the evidence, including the evidence as to the 17 November 2006 meeting, to determine what Mrs Abrugiato understood about the liabilities of the Family Trust, the effect of the dividend payment plan or the impact of that plan on the distribution of her estate, other than by reference to the advice and recommendations contained in the Succession Plan.

198 Eighthly, the primary judge held (and he was entitled to hold) that the evidence did not permit a finding to be made that Mrs Abrugiato formed an actual intention that the liabilities of the Family Trust to Abrugiato, Mr Abrugiato and herself should be allocated under the Deed of Separation as to one-fifth to each of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund and as to three-fifths to the Roma Fund.

Ground 2: cl 12(c) of the Family Trust Deed

200 Clause 12(c) of the Family Trust Deed was inserted by a deed of variation dated 8 February 2005. Mrs Abrugiato executed the deed of variation as a director of Franknelly. She also signed a written consent to the deed of variation in her capacity as guardian of the Family Trust.

The Trustee shall be entitled to be indemnified out of the Trust Fund against liabilities incurred by the Trustee in the execution or attempted execution or as a consequence of the failure to exercise any of the trusts, authorities, powers and discretions of this Deed or by virtue of being the Trustee of this Trust BUT the Trustee shall not be entitled to be indemnified by any beneficiary personally in respect of those liabilities or other matters.

202 Counsel for Franknelly submitted that a trustee's right of indemnity from the trust assets for liabilities properly incurred in the execution of the trust is an incident of the office of trustee and is inseparable from it. Subject to any applicable statute, the right of indemnity is incapable of being excluded by agreement. Counsel argued that s 5(3) of the Trustees Act 1962 (WA), which in essence enables powers conferred on a corporate trustee by the Act to be excluded in the trust instrument, did not apply to the statutory right of indemnity conferred on trustees by s 71 of that Act on the ground that s 5(3) applies to 'powers' and s 71 confers a 'right' as distinct from a 'power'.

203 The Deed of Separation dealt with liabilities of Franknelly as trustee of the Family Trust that were in existence before the execution of the deed. It was submitted that, in these circumstances, Franknelly had an equitable lien or charge over the trust assets transferred under the deed. This lien or charge existed in respect of both its power of recoupment and its right to exoneration, and Abruzzi and Ortana, as successor trustees, took the assets transferred to them under the deed subject to that lien or charge.

204 According to counsel for Franknelly, Franknelly is entitled to be indemnified out of the assets transferred to the Roberto Abrugiato Fund and the Luciana Santacaterina Fund under the Deed of Separation 'to the extent of the liabilities of the Family Trust existing immediately prior to the execution of the Deed of Separation, including in respect of the liabilities in the sum of $1,994,605 assigned by the Deed of Separation'.

Ground 2: trustee's right of indemnity and equitable lien or charge: applicable principles

205 Under the general law a trustee is personally liable for all trust liabilities incurred by the trustee unless, in a particular case, personal liability has been excluded by express agreement between the trustee and the creditor. See Muir v City of Glasgow Bank (In liq) (1879) 4 App Cas 337, 355, 362 (Earl Cairns LC), 388 (Lord Blackburn); Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319, 324 (Latham CJ), 335 (Dixon J); Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360, 367 (Stephen, Mason, Aickin & Wilson JJ). It is immaterial that the liability was incurred for the benefit of the beneficiaries or that the creditor knew the trustee was acting in the capacity of trustee.

206 Although a trustee is in general personally liable for all trust liabilities incurred by the trustee, in equity the trustee has a right of indemnity out of the trust assets for liabilities properly incurred in the management or administration of the trust. The trustee has a power of recoupment and a right to exoneration. The right of indemnity is an incident of the trustee's office and is inseparable from it. See Worrall v Harford [1802] EngR 342; (1802) 8 Ves Jun 4, 8; [1802] EngR 342; 32 ER 250, 252 (Lord Eldon LC); Kemtron Industries Pty Ltd v Commissioner of Stamp Duties (Qld) [1984] 1 Qd R 576, 585 (McPherson J, Andrews SPJ agreeing).

207 A trustee has an equitable lien or charge over the trust assets for the purpose of enforcing the right of indemnity. The lien or charge arises by operation of equity from the trust relationship. See Re Pumfrey (1882) 22 Ch D 255, 261 - 262 (Kay J); Vacuum Oil (324, 335); Octavo Investments (367); Chief Commissioner of Stamp Duties for New South Wales v Buckle [1998] HCA 4; (1998) 192 CLR 226 [47] - [50] (Brennan CJ, Toohey, Gaudron, McHugh & Gummow JJ).

208 A trustee's equitable lien or charge confers a beneficial interest in the trust assets and this interest takes priority over any claims of the beneficiaries. See Octavo Investments (367, 370); Buckle [47] - [50].

209 A trustee is entitled, as against the beneficiaries, to retain the trust assets, or an appropriate part of them, until the right of indemnity has been satisfied. See Stott v Milne (1884) 25 Ch D 710, 715 (Earl of Selborne LC, Cotton & Lindley LJJ agreeing); Jennings v Mather [1901] 1 QB 108, 113 - 114 (Kennedy J); Re Owers [1941] Ch 389, 391 (Simonds J); Kemtron (587); Octavo (367); Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 53 (Owen J, Malcolm CJ & Walsh J agreeing); Buckle [47].

210 A trustee's right of indemnity and equitable lien or charge does not cease upon the trustee retiring or being replaced by a new trustee. It is an independent right which does not depend on the new trustee's right of indemnity, if any. See Kemtron (585 - 586); Coates v McInerney (1992) 7 WAR 537, 539 (Anderson J); Dimos v Dikeakos Nominees Pty Ltd [1996] FCA 1619; (1996) 68 FCR 39, 40 (Jenkinson J, Olney J agreeing), 43 - 44 (Heerey J, Olney J agreeing); Rothmore Farms Pty Ltd v Belgravia Pty Ltd [1999] FCA 745 [36] - [39] (Mansfield J); Southern Wine Corporation Pty Ltd (In liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162 [30] (McLure JA, Wheeler JA agreeing). As to whether a former trustee is entitled, as against a new trustee, to retain the trust assets, or an appropriate part of them, as security for an accrued right of indemnity, see the discussion in Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550 [12] - [50] (Brereton J).

211 A creditor of a trustee, without security over the trust assets, does not have a direct remedy against those assets. For example, the trust assets may not be taken in execution. See Savage v Union Bank of Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170, 1186 (Griffith CJ); Octavo Investments (367). However, a creditor of a trustee is entitled to be subrogated to the trustee's right of indemnity out of the trust assets. See Re Evans; Evans v Evans (1887) 34 Ch D 597, 601 (Cotton LJ), 602 - 603 (Lindley LJ); Octavo Investments (367 - 368); Custom Credit (53). This right is derivative in character. The creditor's right, by way of subrogation, will therefore exist only if the trustee has a right of indemnity. See Strickland v Symons (1884) 26 Ch D 245, 247 - 248 (Earl of Selborne LC). Further, the creditor cannot claim, by way of subrogation, more than the trustee's entitlement. See Re Johnson (1880) 15 Ch D 548, 554 - 557 (Sir George Jessel MR).

212 Although a trustee has a right of indemnity in equity, that right may also be conferred by the trust instrument. Further, the trustee has a right of indemnity under statute.

213 Section 71 of the Trustees Act provides:

A trustee may reimburse himself for or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers.

214 By s 5(3) of the Act:

The powers conferred by or under this Act on a trustee that is a corporation are in addition to the powers given by the instrument (if any) creating the trust and to the powers given by or under the Act or any instrument by or under which the corporation is constituted and any other Act; but the powers conferred on the trustee by this Act, unless otherwise stated -

(a) apply if and so far only as a contrary intention is not expressed in the instrument (if any) creating the trust and have effect subject to the terms of that instrument; and

(b) apply if and so far only as a contrary intention is not expressed in the Act or any instrument by or under which the corporation is constituted or any other Act, and have effect subject to the terms of every such Act and instrument; but nothing in this paragraph affects any Act that applies to every trustee, whether a corporation or not.

215 The term 'power' is not defined in the Trustees Act. It is, however, defined in s 5 of the Interpretation Act 1984 (WA). By s 5, relevantly, in the Interpretation Act and every other written law, 'power' includes any privilege, authority or discretion. The natural and ordinary meaning of the word 'privilege' includes a right. Nothing in the intent or object of the Trustees Act, and nothing in the subject or context of the Trustees Act, is inconsistent with the application to that Act of the definition of 'power' in s 5 of the Interpretation Act. I am satisfied that the reference in s 5(3) of the Trustees Act to the 'powers' conferred by or under that Act on a trustee that is a corporation includes 'rights' conferred by or under the Act on a trustee that is a corporation. Further, for the purposes of s 5(3) of the Trustees Act, powers and rights conferred by or under the Act on trustees generally are conferred on trustees that are corporations.

216 Accordingly, the effect of s 5(3) of the Trustees Act, properly construed, is that the right of indemnity under s 71 may be excluded by a contrary intention expressed in the trust instrument.

217 The position in Western Australia is to be compared to and contrasted with the statutory provisions in Queensland.

218 Section 72 of the Trusts Act 1973 (Qld) confers a right of indemnity on a trustee out of the trust property for all expenses reasonably incurred in or about the execution of the trusts or powers. By s 65 of that Act, the statutory right of indemnity cannot be overridden by a contrary intention in the trust instrument. See Kemtron (584 - 585); RJK Enterprises Pty Ltd v Webb [2006] QSC 101; [2006] 2 Qd R 593, 595 (Douglas J).

219 A trust instrument may limit the trustee's right of indemnity to a specified portion of the trust assets. See Re Ballman; Ex parte Garland [1804] EngR 336; (1804) 10 Ves Jun 110, 119 - 122; [1804] EngR 336; 32 ER 786, 789 - 790 (Lord Eldon LC); Octavo (367); Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773, 774 (Glass JA, Samuels JA agreeing), 778 (Mahoney JA).

220 Also, a trust instrument may exclude any right of the trustee to claim an indemnity against the beneficiaries personally. See Hardoon v Belilios [1901] 1 AC 118, 127 (Lord Lindley, delivering the advice of the Privy Council); Wise v Perpetual Trustee Co Ltd [1903] AC 139, 149 - 150 (Lord Lindley, delivering the advice of the Privy Council); McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623, 641 (Young J).

221 There is some uncertainty as to whether a trust instrument may exclude the trustee's right of indemnity in equity.

222 In Re German Mining Co; Ex parte Chippendale [1854] EngR 664; (1854) 4 De G M & G 19; 43 ER 415, Turner LJ held that although trustees are entitled to be indemnified for expenses incurred by them within the limits of their trust, the trust instrument 'may be so framed as to deprive ... trustees of the right to indemnity, and, if parties think proper to accept ... trusts under deeds so framed, they must abide by the consequences; but the right of indemnity is incident to the position of a trustee, and if it is sought to exclude that right, the provisions for that purpose must ... be clearly expressed' (52; 427). See also Polly Peck International plc v Henry [1999] 1 BCLC 407, 412 (Buckley J).

223 Similarly, in RWG Management Ltd v Commissioner for Corporate Affairs [1985] VicRp 42; [1985] VR 385, Brooking J expressed the view that a trustee's right of indemnity in equity could be excluded by the trust instrument. His Honour said (395):

So far as the trustee's own position is concerned, although the right of indemnity out of assets has been described as arising out of the nature of the office of trustee, and as inseparable from it, I doubt whether this means any more than that the character of the office makes it unjust to throw burdens upon the trustee without at the same time enabling him to be reimbursed or exonerated out of the trust property. Hardoon v Belilios [1901] AC 118 grounds the trustee's right to be indemnified by the beneficiary upon this same broad notion of justice. The Judicial Committee accepts, at p 127, that the beneficiary's obligation can be excluded, and it is difficult to see why the right against the trust estate should stand in a different position. Observations in Re German Mining Co; Ex parte Chippendale [1854] EngR 664; (1854) 4 De GM & G 19, at p 52; [1854] EngR 664; 43 ER 415 at p 427 suggest that exclusion is possible. If a Trustee is willing to accept office where the trust instrument ousts his indemnity, I do not see why he should not be free to do so.

The matter would seem, however, to be placed beyond doubt in Victoria by the Trustee Act 1958. As I have said, s 36(2) is merely a statutory recognition of the equitable rule, and by s 2(3) the powers conferred by s 36(2) shall apply if and so far only as a contrary intention is not expressed in the instrument creating the trust and shall have effect subject to the terms of that instrument. Even if, contrary to my view, the equitable indemnity out of assets was incapable of exclusion, Parliament must now be taken to have determined the matter: cf Official Custodian for Charities v Parway Estates Developments Ltd [1984] 3 WLR 525 at pp 535 - 6; [1984] 3 All ER 679, at pp 686 - 7.

224 Section 36(2) of the Trustee Act 1958 (Vic) is in substance identical to s 71 of the Western Australian Trustees Act. Section 2(3) of the Victorian statute is in substance identical to s 5(3) of the Western Australian statute.

225 In Kemtron, McPherson J (Andrews SPJ agreeing) cited the judgment of Lord Eldon LC in Worrall (8; 252) as authority for the proposition that a trustee's right of indemnity in equity out of the trust assets is 'an incident of the office of the trustee and is inseparable from it' (585). His Honour said '[f]or that reason it is probably incapable of being excluded' (585). He observed that the statutory right of indemnity in s 72 of the Queensland Trusts Act is, by virtue of s 65 of that Act, incapable of being excluded (585).

226 McPherson J's view on this issue in Kemtron was referred to by Santow J in JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691, 706. Santow J did not, however, refer to Brooking J's view in RWG Management. According to Santow J, 'the better view is that (apart from statute) a trustee may not by agreement exclude the right of indemnity from the trust estate which arises as a necessary incident of the office of trustee' (706).

227 The view of Brooking J reflects the opinion of Professor HAJ Ford. In his article, 'Trading Trusts and Creditor's Rights' [1981] MelbULawRw 1; (1981) 13 Melbourne University Law Review 1, Professor Ford said:

In those jurisdictions in which the statutory power of recoupment and the statutory right to exoneration (Supra n 10) may be excluded (Trustee Act 1958 (Vic) s 2(3); Trustees Act 1962 - 1968 (WA) s 5(3); Trustee Act 1898 (Tas) s 64) it is open to the creator of the trust, by the terms of the trust, to deny to a trustee a right to recoupment and a right to exoneration against the trust property or to limit such rights (Ex parte Chippendale, In the matter of The German Mining Co [1854] EngR 664; (1854) 4 De G M & G 19, 52; [1854] EngR 664; 43 ER 415, 427. See also the cases under which a trustee authorized to conduct a business may have indemnity only out of the property authorized to be used in that business. Supra n 49).

228 However, Professor Ford noted that although the exclusion by a trust instrument of the trustee's right of indemnity in equity may be valid and enforceable against the trustee, there may be circumstances in which the exclusion may be challenged successfully by trust creditors (17 - 18). It appears that where the exclusion of the trustee's right of indemnity in equity is intended fraudulently to defeat a creditor's derivative claim, equity will ignore it. See Re Johnson (552); McLean (641).

229 A number of academic writers have suggested that, at least in jurisdictions where a trustee's statutory right of indemnity may be excluded by a contrary intention expressed in the trust instrument, the trustee's right of indemnity in equity may be ousted in the instrument unless the purpose of the exclusion is fraudulently to defeat creditors' rights. See Lewin on Trusts (18th ed, 2008) 21-08, 21-39; Jacobs' Law of Trusts in Australia (7th ed, 2006) [2106]; Thomas and Hudson, The Law of Trusts (2004) 53.24.

230 Where a trustee makes a distribution to beneficiaries, the trustee's right of indemnity and accompanying equitable lien or charge cease to exist in relation to the distributed assets, unless the right and accompanying security are expressly preserved. See Lewin on Trusts 26-30; Underhill and Hayton, Law of Trusts and Trustees (17th ed, 2007) 83.34 and the cases and academic writings there cited.

231 The authors of Lewin on Trusts distinguish a distribution of trust assets to beneficiaries from a vesting of trust assets in a new trustee, where the right of indemnity of the trustee who is retiring or being replaced survives (26-30). See also [210] above.

232 It is well established that a common law right may be released at common law only by a deed of release or by an agreement for consideration, but an equitable right may be released in equity by an instrument under hand, orally or by conduct. See Wright v Vanderplank [1856] EngR 331; (1856) 8 De G M & G 133, 146 - 147; [1856] EngR 331; 44 ER 340, 345 (Turner LJ); Avtex Airservices Pty Ltd v Bartsch (1992) 107 ALR 539, 567 (Hill J); Meagher Gummow & Lehane's Equity Doctrines & Remedies (4th ed, 2002) [35-030].

233 A mere promise to release in the future will not operate as an effective release in equity. There must be 'a present, fixed intention immediately to release': Meagher Gummow & Lehane's Equity Doctrines & Remedies [35-030].

234 Two preconditions to the operation of the equitable defence of release are summarised in Meagher Gummow & Lehane's Equity Doctrines & Remedies, as follows:

First, the plaintiff must fully and clearly appreciate the nature and the circumstances of the transaction out of which his right arises (Burrows v Walls [1855] EngR 294; (1855) 5 De G M & G 233 at 253; [1855] EngR 294; 43 ER 859 at 867 - 8; Life Association of Scotland v Siddal [1861] EngR 300; (1861) 3 De G F & J 58 at 74; [1861] EngR 300; 45 ER 800 at 806; [1861 - 73] All ER Rep 892 at 897; Farrant v Blanchford [1863] EngR 168; (1863) 1 De G J & Sm 107 at 119; [1863] EngR 168; 46 ER 42 at 46 - 7; Wall v Cockerell [1863] EngR 342; (1863) 10 HLC 229 at 242 - 6; [1863] EngR 342; 11 ER 1013 at 1018 - 20; [1861 - 73] All ER Rep Ext 1583 at 1589 - 91; Spackman v Evans (1868) LR 3 HL 171 at 191, 233, 247; La Banque Jacques-Cartier v La Banque d'Epargne (1887) 13 App Cas 111 at 118) ... Secondly, the plaintiff must know that he has an equitable remedy against the defendant, even if he does not know how such a remedy might be lost in equity; and, in this regard, constructive knowledge is equated with actual knowledge. Once a defendant [sic] is put on inquiry, he is affected by notice of what he would have discovered if he had inquired. If a plaintiff knew that the validity of the transaction he impeaches was dubious, he is in the same position as if he knew that the transaction if disputed would be held invalid. A deliberate choice by the plaintiff to adhere to the transaction, whether he could avoid it or not, is in all respects equivalent to an election to confirm it with full knowledge of his right to set it aside (Mitchell v Homfray (1882) 8 QBD 587; Allcard v Skinner (1887) 36 Ch D 145; [1886 - 90] All ER Rep 90) [35-035].

235 In my opinion, at least in Western Australia, a trustee's right of indemnity in equity is capable of being:

(b) released upon the trustee transferring or vesting the trust assets in a new trustee,

unless, relevantly, the purpose of the exclusion or release is fraudulently to defeat creditors' rights.

236 I am of that opinion for the following reasons.

237 First, it is well-established that a trust instrument may limit the trustee's right of indemnity to a specific portion of the trust assets.

238 Secondly, it is well-established that a trust instrument may exclude any right of the trustee to claim an indemnity against the beneficiaries personally.

239 Thirdly, it does not follow, as a matter of logic, from the source of a trustee's right of indemnity in equity (namely, the nature of the office of trustee) or from that right being 'inseparable' from the office of trustee, that the right of indemnity may not be excluded or released.

240 Fourthly, s 71 of the Trustees Act is a statutory recognition of the trustee's right of indemnity in equity. See National Trustees Executors & Agency Co of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268, 274 (Starke J), 277 (Williams J). By s 5(3) of the Trustees Act, Parliament has enacted in effect that the right conferred by s 71 may be excluded by a contrary intention expressed in the trust instrument.

241 Fifthly, if the purpose of excluding or releasing the trustee's right of indemnity is fraudulently to defeat creditors' rights, the exclusion or release may be set aside on their application.

242 The view expressed by McPherson J in Kemtron, namely, that the trustee's right of indemnity in equity is 'probably incapable of being excluded', was made in the context of s 72 of the Queensland Trusts Act which, as I have mentioned, prohibits the statutory right of indemnity in that State from being overridden by a contrary intention in the trust instrument. The similar view expressed by Santow J in JA was made without reference to the reasons of Brooking J in RWG Management.

243 In my opinion, upon execution of the Deed of Separation and Franknelly's consequent removal as trustee of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund, Franknelly released its accrued right of indemnity out of the assets of those funds, arising from its previous status as trustee of the Family Trust, and its equitable lien or charge over those assets. The rights and interests released included Franknelly's accrued right of indemnity in equity, pursuant to cl 12(c) of the Family Trust Deed and under s 71 of the Trustees Act. My reasons for this opinion are as follows.

244 First, the parties to the Deed of Separation were Mrs Abrugiato, Franknelly, Abruzzi and Ortana.

245 As at 13 June 2007, when the Deed of Separation was executed, Mrs Abrugiato was the directing mind and will of Franknelly, Abruzzi, Ortana and Abrugiato.

246 Secondly, it is apparent from Mrs Abrugiato's will, the Deed of Separation and the Succession Plan, read and construed together, that, as at 13 June 2007, Mrs Abrugiato intended that her estate (that is, the assets she owned or controlled) would be distributed 'as equally as possible' between her children.

247 Thirdly, the Deed of Separation, on its proper construction, allocated specific assets and specific liabilities to each of the Roma Fund, the Roberto Abrugiato Fund and the Luciana Santacaterina Fund.

248 Fourthly, the Deed of Separation did not expressly mention Franknelly's accrued right of indemnity, and accompanying equitable lien or charge, by virtue of its former status as trustee of the Family Trust.

249 However, the liabilities expressly referred to in the Deed of Separation, and allocated to the Roberto Abrugiato Fund and the Luciana Santacaterina Fund, did not include any of the liabilities owing by Franknelly as trustee of the Family Trust to Abrugiato or Mr and Mrs Abrugiato. Those liabilities, totalling $1,985,382, were allocated to the Roma Fund.

250 By cl 7.2 of the Deed of Separation, Abruzzi covenanted with Franknelly that Abruzzi assumed liability for payment or satisfaction of those debts and liabilities, and liability for payment of those amounts due to or set aside for beneficiaries of the Family Trust, each as specified in item 7.2 of the schedule, and undertook to indemnify and hold Franknelly harmless from all claims and liability in respect thereof. The debts and liabilities specified in item 7.2 were 'nil'.

251 Clause 8.2 of the Deed of Separation contained a covenant by Ortana in favour of Franknelly which was identical to the covenant in cl 7.2, except the debts and liabilities referred to in cl 8.2, being those set out in item 8.2 of the schedule, comprised 'liabilities and amounts due to beneficiaries', namely the children of Luciana, in the total amount of $2,572.

252 Fifthly, as at 13 June 2007, the gross value of the assets allocated to the Roma Fund was $6,443,717 and the net value of those assets was $4,452,237.

253 So, as at 13 June 2007, the net value of the assets of the Roma Fund over which Franknelly had an equitable lien or charge to secure its accrued right of indemnity exceeded the liabilities of Franknelly as trustee of the Family Trust (and the Roma Fund) by $4,452,237.

254 Sixthly, it is apparent from the Succession Plan and the Deed of Separation, read and construed together, that, as at 13 June 2007, Mrs Abrugiato intended that the liabilities of Franknelly as trustee of the Family Trust (and the Roma Fund) to Abrugiato and Mr and Mrs Abrugiato, totalling $1,985,382, would be discharged before her death by the implementation of the dividend payment plan over a period of five years.

255 Accordingly, the implementation of the dividend payment plan over a period of five years would have discharged the liabilities of Franknelly as trustee of the Family Trust (and the Roma Fund) to Abrugiato and Mr and Mrs Abrugiato.

256 The continued subsistence of Franknelly's accrued right of indemnity out of the assets of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund, after the execution of the Deed of Separation, would have been inconsistent with Mrs Abrugiato's intention that the liabilities of Franknelly as trustee of the Family Trust (and the Roma Fund) to Abrugiato and Mr and Mrs Abrugiato would be eliminated under the dividend payment plan and, potentially, with Mrs Abrugiato's intention that the assets she owned or controlled would be distributed 'as equally as possible' between her children.

257 Seventhly, the purpose of Franknelly's accrued right of indemnity, and the accompanying equitable lien or charge, was to protect the personal rights and interests of Franknelly in that Franknelly was personally liable for the amounts owing to Abrugiato and Mr and Mrs Abrugiato.

258 Its purpose was not to protect the rights or interests of the beneficiaries of the Family Trust (or the Roma Fund), notably, Mirella, Maria and Morena.

259 Eighthly, although Abrugiato was not a party to the Deed of Separation, Mrs Abrugiato, who was the directing mind and will of Abrugiato by virtue of her status as its governing director, was a party to the deed in her capacity as the appointor of the Family Trust.

260 It was not suggested, and there was no basis in the evidence for suggesting, that any release of Franknelly's accrued right of indemnity, and the accompanying equitable lien or charge, was a fraud on Abrugiato or Mr and Mrs Abrugiato as creditors.

261 Ninthly, cl 16A of the Family Trust Deed, which provided, relevantly, that if the appointor exercised the power under cl 16(aa)(iv) of the deed to appoint a separate trustee for any part of the Family Trust Fund, then the separate trustee, in respect of liabilities incurred after its appointment, would only be entitled to an indemnity out of those trust assets held by that separate trustee and not out of any other part of the Family Trust Fund, did not preclude Franknelly from releasing its accrued right of indemnity out of the assets of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund and its equitable lien or charge over those assets.

262 Tenthly, at all material times Mrs Abrugiato knew of the existence of the right of indemnity conferred on Franknelly by cl 12(c) of the Family Trust Deed. Further, the only reasonable inference is that at all material times Mr Young, the barrister who was instructed by Bird Cameron on behalf of Mrs Abrugiato to prepare, relevantly, the Deed of Separation and the Deed of Variation, knew of Franknelly's right of indemnity in equity, pursuant to cl 12(c) of the Family Trust Deed and under s 71 of the Trustees Act.

263 Franknelly's release of its accrued right of indemnity (in equity, pursuant to cl 12(c) of the Family Trust Deed and under s 71 of the Trustees Act) out of the assets of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund, and its equitable lien or charge over those assets, is to be deduced by implication or interpretation from the express terms of the Deed of Separation in the context of the matters I have enumerated at [244] - [262] above.

265 The delay in filing the appeal notice was modest and has been explained adequately. I would grant an extension of time to appeal.

266 It is unnecessary to determine whether the judgment under appeal is final or interlocutory. I would grant leave to appeal on the assumption, made by the parties, that leave is required.

267 Neither ground 1 nor ground 2 has been made out. The appeal should be dismissed.