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[2005] WASC 105
General information, not legal advice.
Supreme Court of WA
2005-05-31
Mr J
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : MIORADA & ANOR -v- MIORADA & ORS [2005] WASC 105
ANNA MARIA SANASI as Executrix of the Estate of CATERINA MARIA MIORADA
PETER GILBERT ROWE as Executors of the Estate of BORTOLO MIORADA
ANNA MARIA SANASI as Executrix of the Estate of CATERINA MARIA MIORADA
Leave for individual to advocate for company - Breach of trust - Transfer of trust property from beneficiary to trustee - Transfer in excess of trustee's entitlement - Breach of "fair dealing rule" - Knowing assistance from alter ego - Rescission - Restitutio in integrum - Restitution to the estate - Capital gain tax - Orders for inquiry/accounts removal of trustee
First-named First Defendant : Mr D M Stone & Ms L Allison
Third-named First Defendant : Mr D M Stone & Ms L Allison
ACT General Cleaning Co Pty Ltd v Naoum [1996] FCA 1560; (1996) 67 FCR 361
Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216
Alice Springs Abattoirs Pty Ltd v Northern Territory of Australia [1996] NTSC 69; (1996) 134 FLR 440
Arbuthnot Leasing International Ltd v Havelet Leasing Ltd [1991] 1 All ER 591
Barnes v Addy (1874) LR 9 Ch App 244
Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282
Chillingworth v Chambers [1896] 1 Ch 685
Coles v Trecothick [1804] EngR 88; (1804) 32 ER 592
Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178
Fedorovitch v St Aubins Pty Ltd (No 2) [1999] NSWSC 776
Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1
Hubbard Association of Scientologists International v Anderson [1972] VicRp 37; [1972] VR 340
Joondalup Gate Pty Ltd v Minister for Lands (1966) 33 ATR 327
LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; (2002) 26 WAR 517
Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572
Molnar Engineering Pty Ltd v Burns [1984] FCA 232; (1984) 3 FCR 68
Neil v Nott (1994) 68 ALR 509
Permanent Building Society (In Liq) v Wheeler (1994) 11 WAR 187
Re Dawson [1966] 2 NSWR 211
Re Hoffman [2004] WASCA 238; (2004) 51 ACSR 314
Tito v Waddell (No 2) [1977] Ch 106
Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102
Armitage v Nurse [1997] EWCA Civ 1279; [1997] 2 All ER 705
Biala Pty Ltd v Mallina Holdings Ltd (No 4) (1993) 13 WAR 11
Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46
British Transport Commission v Gourley [1955] UKHL 4; (1955) 3 All ER 796
Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534
Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178
Cooper v Griffiths (as trustee of the estate of Muriel Eileen Griffiths) [2003] WASC 55
Dempster & Anor v Malina Holdings Ltd (1994) 13 WAR 124
Elesanar Constructions Pty Ltd v Pacific Exchange Corp Pty Ltd [2002] QCA 389
Ex parte James [1803] EngR 536; (1803) 8 Ves 337
Fico v O'Leary [2004] WASC 215
Goodwin v Duggan (1996) 41 NSWLR 158
Government Employees Superannuation Board v Martin (1997) 19 WAR 224
Kane v Radley-Kane [1998] 3 WLR 617
Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16
Letterstedt v Broers (1884) 9 App Cas 371
O'Halloran v R T Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262
Provan v HCL Real Estate Ltd (1992) 24 ATR 238
Silkstone Haigh Moor Coal Company v Edey [1900] 1 Ch 167
Spellson v George (1992) 26 NSWLR 666
Duke Group Ltd (in liq) v Pilmer & Ors [1998] SASC 6529; (1998) 16 ACLC 567
Titterton v Oates (1998) 143 FLR 467
Vaiela Pty Ltd v Trisley [2003] NSWSC 873
1 COMMISSIONER MCKERRACHER QC: This is a regrettable family dispute involving allegations of breach of trust by one or more executors of an estate with the principal allegations being directed against the first defendant James Peter Miorada.
2 By consent and for the sake of convenience, the members of the Miorada family have been identified at trial and in these reasons by their given or first names. The parties have accepted that this abbreviated terminology is not in any way intended to be disrespectful.
3 Bortolo Miorada (Bortolo) was the husband of Caterina Maria Miorada (Caterina) and the father of James Peter Miorada (James), Robert John Miorada (Robert) and Anna Maria Sanasi (Anna).
4 On 29 March 1985 Bortolo died and probate of his Will (made on 12 July 1984) was granted on 28 June 1985 to his sons Robert and James and to Peter Rowe, the second plaintiff, an accountant.
5 Under cl 4 of Bortolo's Will he devised and bequeathed his land and residence at 63 Preston Point Road, East Fremantle free of encumbrances (the Property) to Robert James and Peter Rowe as trustees on the following trust:
"(a) to permit my said wife to have the use occupancy and enjoyment thereof and receive the rents and profits thereof during her lifetime AND I DIRECT my Trustee to pay all rates, taxes and other outgoings thereon and keep the same in good and habitable state of repair fair wear and tear and damage by fire lightning earthquake, storm and tempest excepted and keep the same insured against fire, lightning, earthquake, storm and tempest.
(b) Upon the death of my said wife to subdivide, partition and divide the property as follows:
(i) The lot at the rear of the residence often termed by me as 'the back lot' to my daughter ANNA MARIA SANASI
(ii) The lot being the land upon which the said residence is erected to my son JAMES PETER MIORADA absolutely
(iii) The lot at the front of the residence often termed by me as 'the riverfront lot' to my son ROBERT JOHN MIORADA absolutely
PROVIDED HOWEVER that the subdivision of the property shall be carried out by my Trustee so that each of the lots to be taken by my three children as aforesaid shall be as near as possible to equal area.
PROVIDED FURTHER HOWEVER that if my Trustee shall be unable to subdivide my property in the manner aforesaid for whatever reason within two (2) years of the date of death of my said wife then my Trustee shall hold the property upon trust for my three said children as tenants in common in equal shares absolutely."
6 In about 1973 Bortolo had caused the Property to be surveyed and a plan of subdivision was prepared and approved by the Town Planning Board.
7 Much later, after his death, on about 24 December 1997 a plan for the subdivision of the property into Lots 51, 52 being areas of 568 square metres and 549 square metres respectively, Lot 53 (the area of which was 1949 square metres) and Lot 54 (the area of which was 842 square metres) was lodged with the Department of Land Administration. Subdivision of the property was approved on 13 August 1999 and duly effected by James.
8 In approximately July 1998 James instructed solicitors to prepare a Deed of Family Arrangement ("the Deed") under which in substance:
(a) Caterina agreed to extinguish her life interest in the property and to vacate it;
(b) Anna agreed to surrender her entitlement to the back lot which was Lot 54 to James or to any trust of which James was the sole beneficiary;
(c) James agreed that in consideration of Anna surrendering her entitlement to Lot 54 to him or any other trust of which he was the sole beneficiary at his direction, he in turn would transfer to Anna a property or properties to the then current value of Lot 54;
(d) the parties to the Deed agreed to allow James and Robert to deal with the Property in any manner they deemed fit, including to subdivide, develop, transfer or mortgage it;
(e) Mr Peter Rowe resigned as an Executor and Trustee of the Will; and
(f) the parties to the Deed directed James and Robert as Trustees to:
(i) transfer Lots 53 and 54 to Preston Point as Trustee of the Preston Point Road Trust. James was designated as the sole beneficiary of the trust; and
(ii) transfer Lots 51 and 52 to Robert or to a trust the sole beneficiary of which was Robert.
9 Robert and Anna say that at the time of execution of the Deed they were unaware of the proviso to cl 4 of the Will to the effect that any subdivision and partition of the property was to be carried out by the Trustee so that each of the lots taken by the children should be as nearly as possible equal in area. They say they believed at the date of execution of the Deed that under the Will Anna was entitled to Lot 54 (the Back Lot), James to Lot 53 (the Residence) and Robert to Lots 51 and 52 (the Riverfront).
10 About 12 months later Caterina died (on 2 July 1999). Shortly after her death, Lots 53 and 54 were transferred to Preston Point.
11 Lots 51 and 52 are still registered in the names of James Robert and Peter Rowe as Executors of the Will. At no time has James transferred or caused to transfer to Anna, property as required under the Deed.
12 On the other hand James, a Trustee, took a transfer of trust property through Preston Point which was very much larger than one third of the area of the Property and significantly in excess of his beneficial entitlement under the Will if one reads the first proviso to the cl 4 of the Will as indicating a wish on the part of Bortolo that the Property was to be subdivided as near as possible into thirds. Anna and Robert have said that they assumed that the subdivision of the Property as actually carried out properly reflected their rights under the Will.
13 About a year after these proceedings were commenced Lot 53 and Lot 54 owned by Preston Point were sold by mortgagee sale on 25 November 2002. The proceeds received at sale discharged obligations owed by Preston Point inter alia to the Bank of Western Australia Ltd ("the Bank"). The sale of those lots now render it impossible to restore the parties previously to the position they were in prior to entry into the Deed.
14 Providing Lots 51 and 52 are transferred to Robert, it is clear that the person who has suffered as a result of these events is Anna. Robert also submitted that Anna was the one who had suffered and accordingly Robert took no further role at trial in the claim against James, although Robert defended a claim for contribution made by James and to which I refer below.
15 Very shortly before the commencement of the trial the solicitor who had represented James and Preston Point was given leave to cease acting on their behalf. With less than two weeks before the trial and despite being urged by the court to attempt to obtain legal representation, James was unable to do so and proceeded to represent himself.
16 On the first day of the trial James also sought leave to advocate for Preston Point. He made it clear that Preston Point had insufficient funds, as did he for that matter, to retain solicitors or counsel on behalf of either himself or Preston Point. He accepted that for all relevant purposes his interests and those of Preston Point were virtually identical in that he, James, was the sole director and beneficial shareholder of Preston Point.
17 Counsel for the other parties made it clear that they did not oppose James representing Preston Point and would not wish to be heard on any application for leave for him to be permitted to do so and did not address me in any detail on the application. I waited to hear the opening address of Mr Stone to assist me to form a view on the application by James.
18 This issue is by no means a formality in this State as the very detailed examination by Hasluck J in Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178 illustrates. Indeed to the contrary, such leave may only granted in exceptional circumstances.
19 His Honour observed in Eastern Metropolitan Regional Council with regard to the then prevailing legislation which is not materially dissimilar to the current legislation :
"[21] A corporation in the common law sense is a legal device by which legal rights, powers, privileges, immunities, duties, liabilities and disabilities are attributed to a fictional entity equated for many purposes to a natural person. The fictional entity acquires rights and liabilities by the acts of persons behind it. Those persons are its immediate operators, its directors, and its ultimate controllers, its member or members. After amendments made by the First Corporate Law Simplification Act 1995 (Cth) the Corporations Law permitted a company formed as a proprietary company to be incorporated on the application of only one person and to exist throughout its life as a single shareholder company, if that was desired. Nonetheless, the overriding concept is that a company is a distinct entity and its rights and liabilities must be viewed separately from the individuals involved in its operation: Ford's Principles of Corporations Law (8th ed par 1.050 to par 1.080).
[22] Section 76 of the Legal Practitioners Act 1893 provides that no person other than a certificated legal practitioner shall appear in any action. Nonetheless, this provision is not to be construed as preventing a party from appearing or defending in person. Further, by s 77A, a person may appear before a court if that appearance is authorised by a written law. The effect of s 5 of the Interpretation Act is that the term 'person' is to be construed as including a company. Accordingly, at a first glance, it might be thought that where a company cannot afford legal representation, like a natural person, the company should have, by one of its office bearers, a right of appearance in court.
[23] Section 198A of the Corporations Law provides that the business of a company is to be managed by or under the direction of its directors who are entitled to exercise all the powers of the company. By s 198E, where there is a single director he or she may exercise all the powers. When these provisions are viewed in combination, they might suggest that a company was entitled to be represented by a duly authorised director, notwithstanding that the company is a discrete legal entity.
[24] Nonetheless, the words of O 12 r1(2) are quite explicit: 'Except as expressly provided by any Act, a defendant to such an action which is a body corporate may not enter an appearance in the action or defend it otherwise than by a solicitor.' The corollary to this is to be found in O 4 r 3(2). This rule provides that 'except as expressly provided by or under any Act a body corporate may not begin or carry on any such proceedings otherwise than by a solicitor.' The Rules of the Supreme Court in England are to similar effect. The rule embodies the previous law and practice in the High Court: see the Supreme Court Practice 1991 at 32 and 108."
"[26] Many years later, in Arbuthnot Leasing International Ltd v Havelet Leasing Ltd & Ors [1991] 1 All ER Ch D 591, Scott J in the Chancery Division undertook a comprehensive survey of the relevant authorities. In that case, a Mr Maughan was the managing director of three defendant companies involved in the proceedings and was also a defendant himself. A large number of interlocutory orders were made and injunctions granted, including some of a Mareva character. Mr Maughan applied in person to appear not only on his own behalf, but also on behalf of one of the defendant companies. Scott J said that the issue before him was whether a director of a company has locus standi to appear in person and make an application on behalf of the company. Scott J held that if the issue before him had been simply one of audience, he would have concluded that Mr Maughan had no right of audience, having regard to the provisions of the Supreme Court Rules, but that he had a discretion pursuant to the inherent power of the court to regulate its own proceedings. However, in circumstances where a director was a party to litigation to which his company was a party, the court was prepared to allow the director to appear in person for purposes which were also those of the company so that justice could be done to all parties.
[27] Scott J made these observations at 599:
'In a case in which a company has had all its assets frozen so that it cannot use those assets to instruct solicitors, I do not for my part see why, in a suitable case, a director of a company whose duty it is to see that the company properly discharges its obligations to third parties, such as trade creditors, should not be joined as a party in order to make an application for a suitable variation or discharge of the injunction that binds the company. In the present case, joinder for that purpose is not necessary. Mr Maughan is already a party to the action. I do not see why, as a party to the action, he has not, by reason of his office as director of Finance and his interest in the shareholding of Finance, sufficient locus standi to make an application for the variation of the order that binds Finance. He does so, not on behalf of Finance, in the sense that Finance will be the party making the application, but on his own account albeit for the purposes of Finance and authorised by Finance to do so.'
[28] I observe in passing that it is apparent from the decision in this case that the role of Mr Maughan as a party to the proceedings in his own right was an important feature of the circumstances underlying the court's decision to exercise its inherent powers. Further, Mr Maughan was a director of the defendant companies at the time the application was made. These features are not present in the circumstances of the present case."
21 After considering a number of Australian cases, his Honour stressed that it was important to keep steadily in mind that in most of these cases the relevant rules either allowed for appearance with leave or contained a dispensing power. Reference was made to Molnar Engineering Pty Ltd v Burns [1984] FCA 232; (1984) 3 FCR 68, in which the Full Court of the Federal Court held that O 4 r 14(2) which relevantly provides that a corporation may not without the leave of the court commence or carry on any proceeding otherwise than by a solicitor, confers a discretion upon the court to grant leave, which discretion will be exercised in favour of a company where there is sufficient reason.
22 In ACT General Cleaning Co Pty Ltd v Naoum [1996] FCA 1560; (1996) 67 FCR 361, the Supreme Court Rules 1937 (ACT) provided that a corporation could not, without leave, carry on proceedings otherwise than by a solicitor. A principal in a family company was granted leave to appear at interlocutory proceedings, but was denied leave by the trial Judge at the trial of the action. The Full Court held that in denying the individual leave to appear for the corporation, the trial Judge's discretion had miscarried, for the grant of leave on previous occasions carried considerable weight as a reason why the status quo should not be altered. The court also was of the view that the trial Judge had not sufficiently taken into account the close nature of the holding of the equity capital of the company.
23 In Alice Springs Abattoirs Pty Ltd v Northern Territory of Australia [1996] NTSC 69; (1996) 134 FLR 440 Kearney ACJ held that the court had discretionary power pursuant to r 2.04 to grant leave to appear, exercisable in favour of a company when "sufficient reason" is shown and this provision should not be narrowly construed. Kearney ACJ held that r 1.13 of the Northern Territory Rules which provided that a corporation shall not take a step in a proceeding except by a solicitor was silent on the issue of a non-solicitor attending court to address argument, a matter which fell to be dealt with solely under the inherent power.
24 There are few other relevant authorities in this State bearing upon these matters. Seaman: "Civil Procedure Western Australia" states, at par 34.5.2, that if the exceptional circumstances so warrant, the court has inherent power in the interests of justice to permit an individual who is not a legal practitioner to appear as an advocate for a company.
25 In Eastern Metropolitan Regional Council (supra) it was held that for the Rules of the Supreme Court in this State to be read consistently, O 4 r 3(2), which provides that a body corporate may not begin or carry on any proceedings otherwise than by a solicitor, should be read in close conjunction with O 12 r 1(2) which provides that a body corporate may not enter an appearance in an action or defend it otherwise than by a solicitor. His Honour held that the need for consistency suggests that the notion of defending an action refers essentially to taking a step in the proceedings or carrying on the action.
"Having regard to the distinction drawn by Scott LJ in Arbuthnot Leasing (supra), as closely analysed by Kearney ACJ in Alice Springs Abattoirs (supra), I am of the view that a Judge of the Supreme Court in this State does not have power to dispense with the explicit requirements of the rules with the result that, even in exceptional circumstances, an individual is not at liberty to take a step in the action on behalf of a company. This is so, notwithstanding the inherent jurisdiction of the Supreme Court to regulate its proceedings. Where the Supreme Court Rules deal with a certain matter specifically, and impose a prohibition, one is obliged to conclude that the Judges collectively, as a collegiate body, have established the practice to be observed. In the absence of a dispensing power, it is difficult to see upon what basis the explicit rule can be disregarded. Section 21(1) of the Supreme Court Act specifically provides that the jurisdiction of the court is to be exercised in the manner provided for by the Act and the rules of court.
...
[49] It follows from earlier discussion, however, that this issue can be distinguished from the discrete issue as to whether the court in the exercise of its inherent jurisdiction can allow an individual in special or exceptional circumstances to appear before the court and act as an advocate for the company. The decided cases suggest that such a power exists in regard to formal matters such as applications for adjournments if, for some sufficient reason, a certificated practitioner is not available. The decided cases also suggest that in other circumstances, including representation of the company at a hearing, an individual will be allowed to appear if the circumstances can be regarded as exceptional."
27 In Re Hoffman [2004] WASCA 238; (2004) 51 ACSR 314 the Full Court referred to Eastern Metropolitan with apparent approval but distinguished it from the circumstances that it was there addressing concerning an application by an individual to issue defamation proceedings for a company.
28 I take the law from these cases as being that if exceptional circumstances so warrant, the court has an inherent power in the interests of justice to permit an individual who is not a legal practitioner to appear as an advocate for a company: Arbuthnot Leasing International Ltd v Havelet Leasing Ltd [1991] 1 All ER 591 at 598. This is for much the same reason that a natural person should generally be represented by counsel: Hubbard Association of Scientologists International v Anderson [1972] VicRp 37; [1972] VR 340 at 343.
29 There are some guidelines as to what may be exceptional circumstances although care needs to be exercised to recognize that the rules differ from court to court. As observed by the Full Federal Court in Molnar Engineering Pty Ltd v Burns [1984] FCA 232; (1984) 3 FCR 68 per Smithers J said at 76
"Certainly in circumstances in which a company's finances are such that a refusal to exercise the discretion in its favour would actually cause the abandonment of proceedings by a company, the loss of skilled legal assistance to the court should carry no weight. It is fundamental that the courts be accessible to a company as an entity according to law and subject to the law. Thus the observations of Higgins J in Federated Engine Drivers and Firemen's Association of Australasia v Broken Hill Proprietary Co Ltd [1913] HCA 71; (1913) 16 CLR 245 are in point."
"But if as suggested in that general thrust, refusal of the application would really operate as an effective barrier to the continuance of the company's proceedings in this Court, I would, as previously stated, regard the situation as one in which too much weight was given to the loss of qualified legal assistance."
30 One of the main concerns that I have had is the capacity for James to adequately present his defence to the allegations against Preston Point and to present arguments in support of his claim for a contribution. To some extent that is ameliorated by the fact that the late withdrawal of his and Preston Point's solicitors means that there are pleadings on foot settled by experienced counsel and a solicitor who have shaped the case in the manner they clearly consider to be in the best interests of James.
31 Additionally, as it appears to me from examining the pleadings, the papers and on hearing opening of Mr Stone for the plaintiff, the relevant factual issues in relation to the main cause of action are not particularly complex. There is a deal of complexity for James to absorb in the events subsequent to the alleged initial breaches and in the appropriate relief to be sought but allowing adequate time to deal with those matters would at least in some measure afford a solution.
32 While there could be little doubt that the company appearing without legal representation was likely to add time to the proceedings and attract all of the burdens the court generally assumes in circumstances where it is dealing with a litigant in person (Neil v Nott [1994] HCA 23; (1994) 68 ALJR 509 at 510), it was clear from the papers that James was an experienced businessman and at least partially capable of understanding the broad concepts involved and articulating arguments in relation to the key issues.
33 The only alternative would be for the company to have no representation and presumably judgment to be entered against it or possibly for the trial to be adjourned. There was no application for the trial to be adjourned but had it been made I would have been most concerned for the position of the other parties who have waited a long time for this matter to come to trial. While the trial may be longer and less conventional than when experienced counsel appear, it appeared to me to be in the interests of all to permit James to represent Preston Point.
34 In the end I resolved to exercise a discretion to permit James to appear as an advocate at the trial for Preston Point and in short, the factors I took into account were:
(a) the interests, knowledge and involvement of James and Preston Point were almost identical and certainly coincided for all evidentiary purposes;
(b) Preston Point could no longer afford to have legal representation and as a result judgment would have been entered against it or there would have been an application for an adjournment. Any adjournment would have done a considerable injustice to Robert, Mr Rowe and Anna.
(c) Preston Point had been represented by experienced counsel and solicitors until shortly prior to the trial and its case had been clearly pleaded; while the legal issues in the case may be complex and would necessitate my vigilance on his behalf, James had been a very experienced businessman and would appear to have had little difficulty in understanding and expressing his view of the underlying facts.
(e) The conduct of the trial could be shaped to ensure that while there may be inconvenience, no party was prejudiced by the exercise of this discretion.
35 Although Robert commenced the proceedings against James for breach of trust and Preston Point for knowingly benefiting from the breach, at trial the only relief sought by Robert was for such orders as may be just. The carriage of the primary claim for breach of trust was pursued by Anna pursuant to her counterclaim which was against all the trustees but was essentially aimed at James for breach of his fiduciary duties.
36 James denied any breach but also sought, in the alternative, contribution from the other trustees if he were to be held liable.
37 Robert therefore led no evidence and did not cross-examine on the primary claim and allowed the presentation of Anna's counterclaim to proceed. This had an unusual effect on the order of addresses and the order of calling witnesses but with the consent of both counsel I also allowed the greatest possible latitude to James in all aspects of the trial including ensuring that he had the last opportunity to address in closing. James also wished to address me as to his case after each of Mr Stone for Robert and Mr Rowe and Mr Bennett for Anna opened their cases but before Mr Bennett called evidence. That course was not opposed and I permitted him to do so in addition to his more detailed subsequent opening.
38 It was contended by Robert that James as a trustee through a nominee, namely Preston Point, took a transfer of the trust property in excess of his beneficial entitlement from the trustees of which he was one and therefore must prima facie restore the trust property or its value to the trust. Lot 53, which was transferred to him was, according to Robert grossly in excess of one third of the area of the Property and accordingly grossly in excess of James' beneficial entitlement. It was said that there was no fully informed consent to this transfer due to the common erroneous assumption shared by Anna and Robert that the Deed reflected the terms of the Will. Alternatively, it was argued that Preston Point which was effectively the alter ego of James knowingly assisted James in the breach of his duty and would be liable under the principles applied in Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1. Additionally, Preston Point was said to have received the trust Property knowing of the breach and was liable, pursuant to the first limb of Barnes v Addy (1874) LR 9 Ch App 244.
39 A trustee (as a fiduciary) owes a fundamental duty of undivided loyalty to the trust's beneficiaries. Two of these principal duties are, firstly, not to allow any conflict of interest between their personal interests and their duties as trustees and, secondly, not to obtain unauthorised benefits from the fiduciary relationship (Breen v Williams (1996) 186 CLR 71 at 93).
40 Normally, a breach of a fiduciary duty will entitle a person to whom the duty is owed to treat any contract entered into in consequence of the breach of duty as being voidable. Rescission of a contract by avoiding it in this manner is only possible if restitutio in integrum either partly or in whole is possible. In this regard it must be possible to "achieve what is practically just by granting rescission and restitution together with orders for accounts": Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102.
41 Anna submits that the facts involve a consideration of the "fair dealing rule" described by Ford & Lee in "Principles of the Law of Trust" par 9760. The fair dealing ruling was both named and expressed by Megarry VC in Tito v Waddell (No 2) [1977] Ch 106 at 241 in the following terms:
"The fair dealing rule is (again putting it very shortly) that if a trustee purchases the beneficial interest of any of his beneficiaries, the transaction is not voidable ex debito justitiae, but can be set aside unless the trustee can show that he has taken no advantage of his position and has made full disclosure to the beneficiary and that the transaction is fair and honest."
(See also "Jacobs Law of Trusts in Australia", 6th ed, par 1747.)
42 The position taken by Anna in relation to rescission was slightly different from the position taken by Robert. Whereas Robert had asserted that the sale of Lots 53 and 54 of the trust Property rendered it impossible to restore the parties to their former position - Anna contended that the fundamental obligation of the defaulting trustee was to make restitution to the estate. This obligation was described as being more absolute in its nature than the common law remedy of damages: Re Dawson [1966] 2 NSWR 211 at 216, per Street J (as his Honour then was) who held:
"The obligation to restore the Estate as to the assets of which he deprived it necessarily connotes that, where a monetary compensation is to be paid in lieu of restoring assets, that compensation is to be assessed by reference to the value of the assets at the date of restoration and not at the date of deprivation."
43 It was argued for Anna that as the rescission sought was in the pure exercise of equitable jurisdiction the court was not bound by the strictness of rescission as a common law remedy and, as such, it was argued equity could provide for the adjustments required by the defendants' conduct - Meagher, Gummow & Lehane: "Equity: Doctrines and Remedies", 4th ed at 24-055 - 24-070; Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 at 223 - 224 where it was said:
"If the case had to be decided according to the principles of the common law, it might have been argued that at the date when the respondent issued his writ he was not entitled to rescind the purchase, because he was not then in a position to return to the appellant in specie that which he had received under the contract, in the same plight as that in which he had received it: Clarke v Dickson [1858] EngR 605; (1858) EB & E 148 (120 ER 463). But it is necessary here to apply the doctrines of equity, and equity has always regarded as valid the disaffirmance of a contract induced by fraud even though precise restitutio in integrum is not possible, if the situation is such that, by the exercise of its powers, including the power to take accounts of profit and to direct inquiries as to allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo: Erlanger v New Sombero Phosphate Co (1878) 3 App Cas 1218, at pp 1278, 1279; Brown v Smitt [1924] HCA 11; (1924) 34 CLR 160, at pp 165, 169; Spence v Crawford (1939) 3 All ER 271, at pp 279, 280. It is not that equity asserts a power by its decree to avoid a contract which the defrauded party himself has no right to disaffirm, and to revest property the title to which the party cannot effect. Rescission for misrepresentation is always the act of the party himself: Reese River Silver Mining Co v Smith (1869) LR 4 HL 64, at p 73. The function of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a purported disaffirmance as an act avoiding the transaction ab initio, and, if it is valid, to give effect to it and make appropriate consequential orders: see Abram Steamship Co Ltd v Westville Shipping Co Ltd (1923) AC 773. The difference between the legal and the equitable rules on the subject simply was that equity, having means which the common law lacked to ascertain and provide for the adjustments necessary to be made between the parties in cases where a simple handing back of property or repayment of money would not put them in as good a position as before they entered into their transaction, was able to see the possibility of restitutio in integrum, and therefore to concede the right of a defrauded party to rescind, in a much wider variety of cases than those which the common law could recognize as admitting of rescission. Of course, a rescission which the common law courts would not accept as valid cannot of its own force revest the legal title to property which had passed, but if a court of equity would treat it as effectual the equitable title to such property revests upon the rescission. (at p 224)."
44 In that regard Anna did not insist on strict restoration and was prepared to accept restoration of the value of the assets with emphasis on the value at the date of restoration. In this regard, it was submitted I should take into account the introduction of Capital Gains Tax legislation in a manner to which I will refer below. It was argued that Anna should have rescission of the release and indemnity given by the Deed to James and that the Executors should be directed to recover the necessary assets for the Estate. In the definition of "Executors" in that context, I should take into account, it was submitted, that the court in the exercise of its inherent supervisory jurisdiction, should remove James as a trustee of the Estate of Bortolo - Jacobs (supra) at par 1584.
45 As I have stated, the position taken by Preston Point on pleadings, evidence and submissions was identical to that of James and was advocated by James. Accordingly where I refer to James in the following paragraphs, I am also summarising the position taken for Preston Point.
46 James acknowledged that Bortolo became the registered proprietor of the Property on 8 July 1947. It then had an area of 3908 square metres with the west boundary of the property abutting Riverside Road and the east boundary abutting Preston Point Road in East Fremantle.
47 James says and I so find, that in about 1973 Bortolo caused the Property to be professionally surveyed and a plan of the subdivision prepared. In the course of the survey the surveyor drove wooden pegs into the grounds of the Property which notionally divided the property into three lots, being, in James' description:
(a) the first lot, the western boundary of which abutted Riverside Road and the eastern boundary of which abutted the western boundary of the second lot, and which had an area of 1117 square metres ("the first lot");
(b) the second lot which was shaped like a battle axe and was that part of the property on which the house was erected, the western boundary of which abutted the first lot and the eastern boundary of which abutted in part the western boundary of the third lot and in part Preston Point Road and which had an area of 1949 square metres ("the second lot"); and
(c) the third lot, the western boundary which abutted the eastern boundary of the second lot and the eastern boundary of which abutted Preston Point Road and which had an area of 842 square metres ("the third lot").
48 The plan was approved and registered by the Town Planning Board of Western Australia on 23 August 1973, subject to a term of approval that sewerage be connected to the third lot. Bortolo duly arranged for that sewerage connection to be made.
49 In the late 1970's and early 1980's James says that Bortolo spoke to James, Anna and Robert separately from time to time and told each of them that he intended by his last will and testament to bequeath and devise on his death the first lot to Robert, the second to James and the third to Anna. James says that during the conversations Bortolo often referred to the first lot as the "front block" or "Robert's block" or "the Riverfront lot" and the second lot as "the house block" or "James' block" and the third lot as "the rear block" or "Anna's block" or "the back lot". Bortolo did not proceed with the subdivision of the Property pursuant to the plan prior to his death. Anna accepts she had discussions of this nature with her father but Robert does not.
50 James contends (and Robert and Anna disagree), that the true effect of cl 4 of the Will is that Bortolo devised and bequeathed the Property to James, Robert and the second plaintiff Rowe as Executors of his Will on trust:
(a) to permit Caterina to occupy the Property during her lifetime;
(b) upon Caterina's death to subdivide and partition the Property and transfer the third lot to Anna, the second lot to James and the first lot to Robert, provided that:
(1) the subdivision and partition of the Property was carried out by the Executors so that each of the lots to be taken by Anna, James and Robert was as near as possible equal in area; and
(2) if the Executors were unable to subdivide the Property in the manner aforesaid for whatever reason within two years of Caterina's death then the Executors would hold the Property on trust for Anna, James and Robert as tenants in common in equal shares absolutely.
51 James says that after the death of Bortolo on 9 May 1985 Mr Rowe, for and on behalf of the Executors, held a meeting in his office in Perth attended by Robert, James, Anna and Caterina and read aloud to those in attendance the exact terms of the Will including the exact terms of cl 4 and gave a copy of the Will to each of Robert, James, Anna and Caterina at the end of the meeting. This latter fact is disputed.
52 From the death of Bortolo until about 1995 Caterina lived by herself in the house and by that time she was 73 years of age. James says that in or about 1995 Anna approached him and said to him that the house was not suitable accommodation for Caterina and that he, she and Robert should consider making arrangements for Caterina to be moved to more suitable accommodation. Between 1995 and 1997 Anna, James and Robert had a number of discussions about this topic. (Robert does not accept that he was part of this planning group.) James rejects the suggestion that he alone arranged the subdivision into the four lots as asserted by Robert and Anna. He says that in about 1997 he and Robert gave consideration to the future subdivision of the Property under the Will and by that time approval for the plan which had been granted by the Town Planning Board of Western Australia on 23 August 1973 having lapsed it was necessary for a new plan to be lodged and approved by the Department of Land Administration ("DOLA") before subdivision could proceed. James says he then retained surveyors who re-surveyed the Property, prepared a new plan of subdivision which was identical in all respects to the original plan. The new plan was approved and registered with DOLA on 24 December 1997. Robert denies his involvement in this exercise in the manner alleged by James.
53 James says the Deed came about in the following way. Early in the next year 1998, according to James, Anna orally suggested to James that more suitable accommodation could be provided for Caterina if:
(a) he acquired and developed a nearby property at 67 Preston Point Road, East Fremantle ("Number 67") by demolishing the house on the property and erecting in its place two home units;
(b) the units be transferred to Anna with life tenancy in one of the home units being given to Caterina and that Caterina should live in the home unit in which she had the life tenancy with Anna living in the other home unit in which she had a life tenancy so that she could be close to Caterina to care for her and to provide companionship for her.
54 James contends that in the course of these discussions Anna said that if this proposal was accepted she would approach Caterina and ask her if she was prepared to surrender her life interest under the Will in the Property and that she, Anna, would transfer her interests under the Will in the Property to James. James says that pursuant to these discussions it was orally agreed between Anna, James, Robert and Caterina that:
(b) Anna, James and Robert would take steps in an endeavour to move Caterina to alternative accommodation where she would have a better house and one more suited to her advancing years on which the rates, taxes and outgoings would be paid and near to where Anna was living so that Anna could provide assistance, companionship and care to Caterina; and
(c) to that end James would develop No 67 by demolishing the house on it and erecting three home units, arrange for a strata title to be issued in respect of the home units on No 67, arrange for the certificates of title for two of the units, the first and the second unit to be issued in the name of Anna and for the certificate of title for the third unit to be issued in his name or in the name of his nominee. After the units had been constructed Anna would live in the first unit and would grant Caterina a life interest in the second unit.
It was also orally agreed, James says, that in consideration for those factors Caterina would surrender her life interest in the property under the Will, Robert would pay James $150,000 towards the costs of developing No 67 and constructing the three home units on it, Anna would transfer her interest in the Property under the Will to James and if the costs of developing and constructing the first and second units exceeded the then value of Anna's interest in the Property under the Will, Anna would pay James the amount of the excess.
55 James says this agreement was reached in a series of conversations, the exact dates of which he could not recall, sometimes in person, sometimes by telephone, sometimes at James' office, sometimes at Anna's residence and sometimes at the house. Only in that context did James and Preston Point accept that James did suggest to Robert, Anna and Caterina they enter into the Deed to vary the terms of the Will and to give effect to the agreement.
56 James admits that at that time he had in his possession a copy of the Will and that he instructed solicitors to prepare the Deed, but he does not accept that Robert and Anna were misled to believe the terms of the Deed reflected the terms of the Will.
57 It is common ground that the Deed contained the following recital:
"By clause 4 of the Will the Deceased bequeathed his interest in the Property to Caterina as a life tenant and then, requested that the Property be subdivided into the "back lot" which he left to Anna, the "residential lot" which he left to James and the "Riverfront lot" which he left to Robert.
On the basis that the Property was subdivided G M Catlin a licensed valuer has at the date hereof subscribed the following values to the lots making up the Properties;
the back lot: $320,000
the residential lot: $1,320,000
the riverfront lot: $975,000
Approval for the subdivision of the Property has been obtained in accordance with the Plan annexed hereto. The back lot is known as "Lot 54", the residential lot is known as "Lot 53" and the river fronts lot [sic] is now known as "Lots 51 and 52"." (Recital F)
Whereas Robert and Anna say this recital did not fairly reflect cl 4 of the Will, James disagrees and submits that it does.
58 James also says that on 5 February 1998 Mr Catlin of Ray White Valuers (WA) valued the Property and expressed the views that, if the property were sold as a single site, its sale price would be in the region of $2,615,000.
59 James says that Robert and Anna made their own judgments about the Deed and the plan and were not misled in any way.
60 James accepts that pursuant to the Deed they caused the house at No 67 to be demolished, plans and drawings to be prepared for the three home units and all necessary licences and approvals to be obtained for that purpose.
61 However, in about March 1999, James says Anna informed him that Caterina had been diagnosed with a terminal illness and did not have long to live. It was "agreed" accordingly that they not proceed with the development of No 67 as had been contemplated. James also says that when Robert became aware that Anna and James did not intend to proceed with the development, Robert took no steps to insist the development on No 67 proceed. Robert on the other hand says that the agreement concerning No 67 was purely an agreement between James and Anna.
62 James accepts that he and Robert have never transferred lots 51 and 52 to Robert but say there was a dispute in relation to the terms of the transfer which caused the delay.
63 James accepts that he has not ensured that Anna has received a property or properties to the value of the third lot as at the date of execution of the Deed as required by the express term of the Deed.
64 Any breach of fiduciary duty by James is denied. Alternatively James says if he has breached any fiduciary duty as an Executor of the Estate that Robert and Rowe have also breached their fiduciary duties as Executors by knowingly assisting James in effecting the subdivision of the Property or by acquiescing in the same and by executing the Deed. As such, it is argued, they should contribute to liability if any is held to exist in relation to James.
65 James says that on 13 August 1999 Preston Point mortgaged the second lot to Branksea Pty Ltd ("Branksea") to secure the payment of monies borrowed by Preston Point from Branksea. On 9 June 2000 Branksea discharged that mortgage and on the same date Preston Point granted Branksea an equitable mortgage on the second and third lots to secure the repayment of the monies originally advanced and then mortgaged the second and third lots to the Bank to secure the payment of monies borrowed by Preston Point from the Bank. The Bank on 25 November 2002 sold the second and third lots to an unrelated third party in exercise of the mortgagee's power of sale.
66 Although neither Anna nor Robert were extensively cross-examined by James, I nevertheless formed a favourable view of Anna in particular who has exercised considerable patience in bringing these matters to a head. I have no reason to think nor did I form the view that her evidence was anything other than honest and accurate.
67 Anna is a head nurse by profession and lived in the family home at the Property. She stayed with her parents and brothers until about the age of 19. The Property extended from Preston Point Road westwards to Riverside Road, East Fremantle, and had a view to the Swan River. Between 1974 and 2001 Anna lived at 11 Fraser Street, East Fremantle, which is very close to the Property and as a consequence she saw her parents often during their later years.
68 Anna agreed that during his lifetime Bortolo caused a number of pegs to be placed in the ground at the Property and that between the later 1970's and early 1980's Bortolo told Anna that he proposed to give Anna, by will, part of the property he referred to as "the rear block" or "Anna's block" and that he would give James "the house block" or "James' block" and would give Robert "the front block" or "Robert's block". She did not discuss with her father the areas of the blocks to be gifted and was aware of the pegs in the ground but does not recall any detail of the conversation in relation to the pegs. Anna confirms that the front block abutted Riverside Road, East Fremantle, the rear block abutted Preston Point Road and the house block was a battle axe shaped area on which the family home was located.
69 After Bortolo's first heart attack in June 1984 Anna visited him every day in Fremantle Hospital for about a week and at this time Bortolo asked her to read a document which he said was a draft of the Will. He asked Anna to go to Mr Rowe's office in St George's Terrace to collect the draft of the Will and repeatedly asked her to read the document and to give him her opinion. She does not recall the contents of the draft and did not recall reading the draft but did browse through it. She did notice that her mother did not "get anything" under the Will and at a later point Anna informed her father that she did not think he was treating Caterina fairly.
70 In July 1984 Bortolo asked Anna to take him to Mr Rowe's office and whilst she was there Mr Rowe said that her father had treated her mother unfairly in relation to division of assets. Nevertheless, the first occasion on which Anna had any idea of what was actually being left to her in the Will was when it was read.
71 Anna does not recall where the reading of the Will occurred but remembers Mr Rowe, James, Robert and Caterina being present. Anna says the Will was read once by Mr Rowe. She does not recall any of its precise terms but recalls that as a result of the meeting she was aware that Mr Rowe and her brothers Robert and James were the Executors. She also recalls that she was told, as she suspected, that the Property had not been left to Caterina. She and her mother left the meeting and never discussed the Will in detail.
72 At the time of Bortolo's death Caterina was 62 years old and lived on the Property until shortly before her death. About five years after Bortolo's death Anna became concerned about the adequacy of her accommodation.
73 In or about 1993 - 1994 No 7 Fraser Street next door to Anna's residence at 11 Fraser Street was for sale. Anna discussed with James and Robert the possibility of moving Caterina to that property so that Anna could be closer to Caterina and could care for her. It did not eventuate at that stage. That possibility was discussed by Anna with James in particular because she saw him as a successful businessman and Anna believed he had the ability and the financial resources "to make things happen". In fact on family financial issues such as her mother's housing she usually spoke to James and only infrequently with Robert.
74 In 1995, about 10 years after Bortolo's death, Anna had a discussion with James regarding the adequacy of Caterina's accommodation at the Property. Anna was conscious that No 67 was for sale and proposed to James that he acquire No 67 and construct three strata titled dwellings. One should be the property of Caterina. An adjacent dwelling should be Anna's with James having the third. Anna and James also discussed contributions to the proposed development and essentially matters were left on the basis that the development of No 67 would proceed and the relative contributions would be sorted out after it was finished. Anna spoke to both James and her mother about the proposal and also about her mother surrendering her rights to occupy the Property. Anna told her mother to get some advice about the idea and her mother decided to discuss the proposal with Mr Rowe. Anna thought this was a good choice.
75 Discussion with Mr Rowe on the proposal apparently occurred and it was reported to Anna who conveyed the outcome to James. Anna then approached the owners of No 67, first through the "Agers". Number 67 was owned by the "Craggs" who were family friends, but Elizabeth Ager was the daughter of the Craggs. Anna spoke to Elizabeth Ager about her proposal. The acquisition proceeded. Number 67 was acquired by Moneta Finance Corporation Pty Ltd a company controlled by James.
76 In or about 1998 Caterina complained of stomach pains in consequence of which Anna arranged for Caterina to be seen by medical specialists. In the meantime James had instructed architects to prepare some plans. There were two sets of plans prepared by different architects - Paul Odham prepared one set and Oldfield & Knott prepared another.
77 The Deed was first seen by Anna in or around the middle of 1998 when it was presented to her at a family meeting in the kitchen of the property. The meeting was attended by Robert, James, Caterina and Anna and a witness whose identity Anna cannot recall. Anna recalls James saying: "Here is the Deed, read it, we need to sign it". Anna was aware that some paperwork was required to surrender her interest and her mother's interest in the Will. She has no recollection of discussing the details of this with James or Robert or Caterina at or prior to the meeting and she trusted James to make the necessary arrangements for the paperwork. Anna says she perused the Deed at the meeting and signed it.
78 At the time of execution Anna says she did not know the terms of cl 4 of the Will but thought she was entitled to receive a gift under the Will of part of the Property being approximately the area represented as Lot 54 in the sketch annexed to the Deed. Lot 54 was shown as being 842 m2.
79 James did not go through the provisions of the Deed clause by clause and according to Anna did not make any comment on the Deed at all. Anna noticed that the Deed had been prepared by solicitors whose name was on the front of the Deed. She assumed it had been prepared in accordance with all relevant documentation including the Will. She recalled that the Deed did refer to the Will. She did not have any contact with the solicitors who drafted the Deed. She noticed that the value given to Lot 54 was $320,000 and assumed, as indicated in the Deed, that a valuation had been carried out. Anna says that she did not obtain a copy of the Will until late 2000 and has never been given any detailed explanation of the terms of the Will by any of the Executors and did not participate at any time in the subdivision of the property.
80 On 14 March 1999 Anna was informed by Caterina's medical practitioner that Caterina had sustained a terminal illness. She telephoned James and conveyed the sad news to him and said that she would not proceed with the development proposal. On 2 July 1999 her mother died and the development of No 67 was not pursued. Between 14 March 1999 and 30 June 1999 Anna was preoccupied with caring for Caterina at her home. Between the end of June and the date of death Caterina was admitted to hospital. Probate of her mother's Will was granted on 12 October 1999 with her brothers each being left $10,000. As soon as Anna was granted the probate of her mother's Will on 12 August 1999 she caused bank cheques for $10,000 to each of her brothers to be drawn. She delivered those cheques to her brothers shortly after.
81 About three weeks later Anna was telephoned by James who said he was short of money. James said that he needed as much as Anna could give him and Anna gave him $34,000 to $35,000. James explained to Anna that he was in financial difficulty. Anna informed James that she wanted to demolish and rebuild 11 Fraser Street where she was living and that he would need to start making periodical payments of the money that James owed Anna for her interest in the Property under the Will. She frequently visited James' office over a period of some 13 months between August 1999 to September 2000 to request repayment of the money advanced and payment for her interest under the Will. She was occasionally able to see James but at no time did he offer any means by which he would compensate her for giving up her interest in the Property.
82 When she first visited a lawyer in early 2000 she realised that she did not have a copy of either the Will or the Deed and called on James' office to request copies, which she says he did not produce at any time.
83 Anna says she never authorised James to take a benefit under the Will which was greater than that provided by the Will and at no time did any of the Executors let her know that James was receiving a benefit greater than that provided in the Will.
84 In cross-examination Anna confirmed that one of the other reasons for not proceeding with the development of No 67 was the unexpected delay that had occurred in obtaining all the necessary approvals and commencing with the project. She confirmed that she had been angry with James at the time in respect of that delay but also accepted in cross-examination that the delay was in part caused by problems in obtaining all the necessary approvals. She accepted these problems were beyond his control.
85 It was put to Anna in substance that the share of the Property she was giving up was valued at $320,000 and that sum was being contributed to pay for 60 per cent of No 67. James put it to Anna that, as he was selling the land to her at cost price, she was receiving immediately a capital profit of $180,000 being the difference between the purchase price and the true value of the land when the development approvals were all finalised. At that stage the land was sold for $815,000. Various other features of the arrangement were also put to Anna in relation to the development of No 67, namely that Robert was to contribute $150,000 to the building on that site. Anna maintained in cross-examination that she had never agreed with James that Robert should be asked to make that contribution and did not consider that it was in any sense part of the proposed arrangement.
86 As to the receipt by Anna of $180,000 profit for 60 per cent of No 67, she said that she had never heard of that suggestion prior to it being put to her in cross-examination.
87 In essence, what James was putting to Anna was that if she had not cancelled the development by the phone call on learning of her mother's terminal illness that the development would have proceeded and Anna would have been wealthier today than she would have been under her entitlements under the Will or under the Deed. Anna did not accept this suggestion. On a number of occasions James made the point in cross-examination that he had intended to look after Anna and was still endeavouring to ascertain how that could be achieved.
88 Two expert witnesses were called for Anna. The first was Mr Graeme Roy Jolley, a director of Bentleys MRI Perth Pty Ltd, chartered accountants and business advisors. Mr Jolley is a tax expert and has practised in that area for many years. The evidence that he expressed was contained in a short initial expert report prepared on 30 July 2003 in which he had been asked to advise on Anna's liability to pay Capital Gains Tax depending on the outcome of the proceedings. He observed that the prayer for relief was based on two possible outcome with respect to the Deed. Either it is set aside or it is not set aside by the court. If the Deed were set aside he noted that Anna was seeking "equitable damages" or, alternatively, a payment of compensation or restitution to the estate. If the Deed were not set aside she would be seeking equitable damages.
89 In relation to equitable damages, he expressed the view that if the matter was settled at the date of his report or any time prior to trial, the settlement would attract Capital Gains Tax. Mr Jolley said that the relevant Capital Gains Tax event was Capital Gains Tax event D1: "creating contractual or other rights". He referred s 104-35 of the Income Tax Assessment Act 1997. The asset was Anna's right to sue and the Capital Gains Tax event would be the disposal by Anna of that right. He expressed the view that the right was simultaneously created and disposed of by Anna on a settlement.
90 The only cost base to be deducted from the receipt of the asset was those costs incidental to the event, namely, legal fees and related costs. He said that the net value to Anna of the damages for compensation would be the gross amount less her Capital Gains Tax liability.
91 The required net amount would have to be "uplifted by a factor of 0.94175" to determine the required gross amount. That uplift factor was a formula based on an assumption that Anna derived sufficient other income to be subject to the highest personal marginal tax rate of 48.5 per cent, including a Medicare levy. There was no direct evidence of that income but I do note that Anna is in a senior nursing position in Ryadh. I would infer that Anna is reasonably well paid, even if not necessarily at the highest personal marginal tax rate which is in excess of $70,000. What her Australian income tax obligations were was not the subject of evidence.
92 Although there is, under current legislation, a discount in respect of those capital gains realised in respect of assets held for greater than 12 months, that discount in this instance would not be available Mr Jolley said because the right would be simultaneously created and disposed of. A disposal would not therefore satisfy the Capital Gains Tax discount eligibility requirement that the asset disposed of be held for greater than 12 months (s 115-25(3) of the ITAA 1997).
93 If, however, Anna were to receive a payment from the estate not in the form of equitable damages but as consideration for her interest in the corpus of the estate then, in his view, no Capital Gains Tax liability would arise because her interest in the estate was a pre Capital Gains Tax asset.
94 Mr Jolley said that if the Court were to order as a consequence of the proceedings restoration of the value of part of the Property (Anna's part), disposal by the estate of that value would be free of Capital Gains Tax. Further, if it took time for the estate to receive the actual payments that were restored to it, so that the asset was paid out over time, he considered that would not change the characterisation of the asset. Any other form of compensation would attract Capital Gains Tax in his view.
95 Expert valuation evidence was given by Mr Phillip Logan a director of Egan National Valuers (WA) by way of report dated 15 September 2003. In that report he expressed the opinion that the value of Lot 53 at 1 August 1998 was $1,190,000 exclusive of GST and the value of Lot 54 as at 1 August 1998 was $360,000. As a yardstick he had amongst other things the sale of Lots 53 and 54 by the Bank on the mortgagee sale to P & E Goodlich in December 2001 for $1,800,000. The increase in value for those two lots is over a period of more than three years between the date at which the two lots were valued and the date at which the two lots were sold.
96 He also expressed the view that the value of the freehold for the whole of 63 Preston Point Road as at 30 June 2003 was $4,195,000 GST inclusive and at that date for Lots 53 and 54 the value was $2,105,000 GST inclusive and $640,000 GST inclusive respectively. GST is included in the valuations as at 2003, no doubt because of its introduction between 1998 and 2003.
97 Mr Logan also expressed the view that since 30 June 2003 the value of the property and the lots might have increased as much as 50 per cent again. He had not however actually been able to conduct a valuation in recent times. If it were necessary to arrive at a current figure I would have to treat such a prediction conservatively.
98 James in his evidence confirmed, as pleaded by him that many years ago when the children were growing up his father subdivided the family house lot into three lots and he asked James, as his oldest son, which one James wanted and invited him to have the first pick. James was a mechanic at the time and did not have much money. James said to his father: "Give Robert the best one at the front" and his father said then you can have the house. Anna was given the rear block. He said this discussion took place while they were all living at home and his father had made it clear who got what and the lots were clearly pegged and marked. James says that when one travelled down the driveway one could quite easily see Anna's boundary peg. When his father cut the lawn he always carefully manicured an edge around it with a small axe so the peg could always be clearly seen and there could never be any misunderstanding of where the boundaries were. His father even went to the extent of putting a new sewer connection to his sister Anna's block which has been available since 1 July 1975. He said that the sewer connection was at the back of the block away from the building.
99 At a later date after Bortolo's death, because James was able to remember who the surveyor who assisted Bortolo had been, by agreement with Robert, James rang the surveyor who provided James with the original Town Planning approval number. With that information, Robert and James then went to the Town Planning archives in Perth and got out the original approval document. Robert then took that document to Guidice Surveyors who re-subdivided the land in the same exact measurements as his father previously did.
100 James' evidence-in-chief was slightly disjointed and to an extent I formed the view that he was explaining his actions on certain topics rather than relating an account of a continuous nature. He explained that there were two mortgages on the Property and he had to sell the blocks in order to clear costs and to clear the mortgages as he could no longer afford the payments. At a point in time when demand was made on James by Anna's solicitors, a caveat was placed on the land on behalf of Anna and the existence of the caveat held up a proposed settlement for a long time, causing the Bank to repossess the Property charging him huge legal fees and penalties as a result of which James said he lost about $240,000 in equity. He is, he said, still being pursued by the second mortgagee for an amount of $180,000.
101 James said that at the time of the Deed he went and spoke to Peter Rowe and then to Robert and Anna and Caterina. The idea at the time of the Deed was to build Caterina and Anna new homes each. Caterina wanted a better home with more security and to be closer to Anna and Anna wanted a new home. James said Caterina had told him that she wanted to give all of the children access to the assets in Bortolo's Will and share out the estate while they were all young. Therefore, he perceived the Deed as having two purposes, one to get better accommodation for Caterina and Anna and the other to give access to all the children to the assets of Bortolo. He said that the arrangement reached with Anna was that they would build three apartments in No 67 with Caterina having the unit closest to the road and bus stop - a one level unit. Anna's was to be a two level unit with views across the park and the river to Rocky Bay as the ground slopes away from the front and it would have allowed Caterina and Anna's units to be joined by a covered ridge which would allow them to visit each other without getting wet etc.
102 He said the development was to be carried out as agreed in the Deed and Robert and he were to pay for Caterina's unit at No 67, with Robert's contribution being about $150,000 and James' to be about $190,000. They were to build Caterina's apartment and Anna would have both apartments in her name with Caterina having life tenancy on the front apartment. On Caterina's passing the unit was to be fully the property of Anna. James was also to contribute $320,000 as part of the Deed. He says these matters were all agreed with Anna.
103 He had great difficulty with the East Fremantle Shire in gaining approval for the three apartments. He said that two apartment duplexes were always treated as commercial developments and East Fremantle did not want to become a high density area. He engaged a professional town planner Mr Chris West. It was necessary, in view of difficulty in obtaining approval from the Council, to appeal to the Minister and finally after pursuing that process approval was obtained with the result that it was possible to sell the land previously bought at $500,000 for $815,000.
104 James sought to explain as he did through cross-examination of Anna, that the $320,000 referred to in the Deed was to pay for 60 per cent of No 67. He would be selling to Anna the land at "absolute raw cost" so that Anna received immediately a capital profit of $180,000, being the difference between the purchase price and the new value because the approvals had been obtained. Robert was to contribute $150,000 and James $190,000. It followed he said that Anna had equity of up to $840,000 for the development at No 67 which delivered Anna two freehold units in due course debt free and the only money she would be required to find was for her own fit-out. I have recorded Anna's response to this suggestion. It was not easy to follow and while it may have done something to appease James discomfort about his sister's concerns about the dealings, it did not go anywhere in terms of the pleaded breaches of duty by James.
105 James says, while the development was proceeding, Anna rang one day and told James that the deal was off as Caterina was much worse and she did not have long to live. James said he was absolutely devastated and did not take the news well. He had done everything possible under the Deed to provide houses for his mother and his sister and the opportunity to do so was now no longer available to him. He had spent at least 10 to 12 hours a week for almost a year getting the necessary approvals. Had Anna not made that phone call he says the development would have proceeded and she would be wealthier today than she would be entitled to be under the Will and the Deed.
106 Since 1998 when his mother died, James said the companies he controlled had suffered severe financial difficulties. He said that for that reason he has been unable to pay Anna the $320,000 which he agreed to pay her under the Deed.
107 In cross-examination James accepted that he was the sole controller of Preston Point Holdings and its Unit Trust, that Preston Point Holdings took a transfer of Lots 53 and 54 unencumbered and together they comprised a little more than two thirds of the Property. He accepted that the only consideration to Anna for her giving up Lot 54 was his promise under the Deed to provide on her mother's death, property which was equivalent to the then value of Lot 54. He acknowledged that Anna had in fact received nothing under cl 4 of the Will and has not received anything pursuant to that promise. He accepted that it was never intended that it would take until 2005 before she received anything under either the Will or his promise and that he had a moral obligation to look after Anna.
108 James gave evidence in cross-examination that Anna had been a co-director with him of 21 to 30 companies which he controlled and had resigned those directorships on commencement of these proceedings. He confirmed that in 1998 and 1999 he ran a bloodstock for some 200 race horses, operated a building society, ran a mortgage broking business and an insurance company. There were about 45 companies under his control at that period of time. The involvement of Anna was simply a legal necessity, she was a "cosmetic director" at the point in time in which it was necessary to have two directors of a company. He acknowledged that her main interests were as a nurse.
109 Much of the cross-examination went to the point that James had put his own personal interests and the interests of the companies under his control well ahead of any attempt to meet the financial obligations to Anna. James accepted this proposition and explained that he had been trying to salvage his "corporate empire" which had faced very difficult times. He explained that he had expected to face insolvency through the collapse of that empire and by attempting to preserve it, he considered that he would ultimately be in a better position to look after Anna. He made it clear at all times that he acknowledged that he has a moral obligation to ensure that funds are paid to Anna.
110 The usage of funds derived indirectly from the Estate in that manner was amply demonstrated in any objective sense by the movements in accounts of related entities after funds had been borrowed against the security of the land which was registered in the name of James or Preston Point Holdings. Although James appeared to have difficulty understanding some of these accounts and difficulty recalling transactions to which he was directed, he nevertheless acknowledged that funds were applied to saving the "corporate empire".
111 In June 1998 Mr Adams, on behalf of James, consulted accountants Barrington Partners in relation to the transfer of the Property specifically in connection with Capital Gains Tax. Part of the advice given was to set up a new company to take Lot 53 and Lot 54. Preston Point was set up for that purpose and came into existence on 28 August 1998.
112 The sequence of events in relation to the acquisition of No 67 was that James caused Moneta to offer to purchase No 67 for $500,000 in September 1997. Moneta, having acquired it, then applied for a demolition licence and made a development application pursuant to which the three strata units were to be constructed on No 67. In late August 1998 Caterina, Anna, Robert and James signed the Deed and in the meantime the development application and the demolition licence were approved in late December of that year. Shortly after execution of the Deed James caused Preston Point to be incorporated (on 28 August 1998) and caused the Preston Point Trust to be created on 7 September 1998.
113 The creation of the Deed was achieved following advice James received from his solicitors in July 1998 concerning the surrender of Caterina's life interest in the Property. He instructed his solicitors in early mid to mid July of that year concerning the arrangement in relation to No 67. He sent various documents concerning that property to his solicitors. In 1998 he then instructed his solicitors to prepare the Deed with the first draft being forwarded to him on 6 August 1998.
114 Between the original draft of the Deed and the final version, James' solicitor had removed a reference to Robert. The relevant clause is cl 2(b), reading:
"In consideration of Anna surrendering her entitlement to the Property James will ensure that upon Caterina's death (or sooner as James may determine) Anna shall receive a property or properties to the now current value of Lot 54."
115 When the draft Deed was forwarded to James, his solicitor asked him to give specific attention to cl 2 in particular. When the Deed was finalised the bracketed portion originally reading "(or sooner as James and Robert may determine)" was amended to read "(or sooner as James may determine)".
116 The other amendment from the draft was to allow for the incorporation of Preston Point and the insertion of that company and the Preston Point Trust were provided for in cl 6 of the final version of the Deed.
117 Bound copies of the Deed were provided by the solicitors on Friday 28 August 1988 with the family meeting to which I have referred being held shortly after that time. James took to the meeting his personal assistant who ultimately witnessed the signing of the Deed. There was no evidence that he provided Anna with a draft of the Deed prior to the meeting or indeed that he provided Robert with a draft. I accept the evidence of Robert and Anna that they did not receive any draft prior to the meeting.
118 Equally, James did not advise Robert or Anna to obtain independent legal advice concerning the Deed or discuss with them tax advice which he had received in relation to the Capital Gains Tax implications of the proposed subdivision of the premises as reflected in the Deed.
119 He did not take with him or discuss the valuation which had been prepared by Mr Catlin and there was no evidence that anyone at the meeting had available to them a copy of the Will at that stage.
120 I conclude from the arrangements that Anna relied entirely on James in these matters in view of his extensive business experience and the fact that her major interest in life was the profession of nursing. The full effect of the arrangement that Anna and James had entered into was not contained in the Deed. That dealt simply with the Property in essence, although it did touch on compensation to Anna.
121 James' recollection of the events surrounding the development of No 67 and the agreement pertaining to it were not clear and not particularly consistent. Equally, Anna's recollection of the agreement was that it was a loose arrangement, as might be expected of a sister who was trusting her financially experienced brother to look after her and her mother in relation to the proposed development. The terms of the agreement in relation to No 67 are by no means clear but in the end it matters little to the resolution of these proceedings.
122 It was clear from the cross-examination of James that following the advice he received from Anna on 15 March 1999 as to the terminal illness of Caterina that he caused the Deed to be lodged for assessment of stamp duty on 22 April 1999, paid stamp duty on the Deed in July 1999 and negotiated to borrow $250,000 from Branksea Pty Ltd shortly after his mother's death. When the titles to Lots 53 and 54 issued, he secured the advance from Branksea by a mortgage over Lot 54 and then caused titles to issue to Preston Point on 13 August 1999. In the meantime Caterina died on 2 July 1999.
123 In addition to the borrowings from Branksea, James also needed to borrow further sums and proceeded to borrow an amount of $1,350,000 from BankWest. He secured that advance by mortgages over Lots 53 and 54. They were registered on 13 November 1999 and 9 June 2000. None of the funds raised against Lots 53 or 54 were paid to Anna, despite the terms of the Deed.
124 On 11 February 2000 James sold No 67 to a third party for the sum of $815,000. He used those profits to retire his own debt and the debt of companies in his "corporate empire". Again, none of these funds found their way to Anna, despite the terms of the Deed.
125 Anna never obtained a copy of the Deed despite requests from James that he provide it. James says that he did leave a copy of the Deed at the reception of his office for Anna to collect but she did not collect it. When Anna finally obtained a copy of the Deed and the Will by the efforts of Robert she confronted James and acted promptly seeking legal advice and lodged a caveat to protect her interests in relation to the Property under the Will.
126 At no time was Anna advised by the Executors that she was entitled to an area of approximately 1,302 m2 of land to be subdivided if possible out of No 63 or alternatively if that were not possible, that she was entitled to be a tenant in common as to an equal one third share in relation to the Property.
127 In his cross-examination and in his evidence-in-chief James strenuously submitted that subdivison of the Property into equal thirds was an impossibility as Anna's lot would extend into the house on the Property, the well would be located in Anna's lot which could not have been contemplated by his father and the battle axe block that James would receive would be useless as the "handle" to the "battle axe" would be elongated and the head of the axe reduced in size. He also made the point that the subdivision of the Property into equal thirds was not at all what his father had in mind with the plan of subdivision and nor did it accord with the sewerage line his father had put down in the 1970's.
128 It was put to James in cross-examination that he simply assumed or was convinced that what his father really meant in cl 4 of the Will was that there should be a subdivision as originally designed in 1975 and it was that subdivision that James gave effect to in the creation of Lots 51, 52, 53, 54 and the terms of the Deed. I accept that James did make this assumption.
129 At the same time however James maintained that division into equal thirds was an impossibility, he was causing valuers to be valuing the Property or the lots to be derived out of it on the assumption that it was a development site and that the improvements on the Property (the family house mainly) would be demolished. Such valuations were obtained in 1994, 1996, 1998, 1999 and 2000. On 30 May 2000 architects applied on his behalf to the local council for a demolition licence in relation to the Property. It is not particularly clear why so many valuations were sought. Nor is it particularly clear why it was necessary to value the Property as a development site, particularly prior to execution of the Deed. Demolishing the improvements on the property would not have been consistent with a belief that the effect of cl 4 of the Will was to enable him to have and occupy the family house after the death of Caterina. However by the time of the architect's application, James certainly knew that the Deed had given rise to a change in the entitlements under the Will.
130 I did not treat the evidence and submissions by James as to the impossibility of division of the property into "as near as possible to equal are(s)" as suggesting that he necessarily turned his mind to a one third division at or about the time of the entry into the Deed. Rather, I took his evidence and submissions to be rejecting the construction which is placed on the Deed by Robert and Anna. It is after all his pleaded case that the proper construction of cl 4 of the Will is that the lots there described refer to the lots which had been indicated on the 1975 plan of subdivision and been the subject of discussion between Bortolo and his children. As will be evident subsequently, my view is that this pays no regard to the second and important proviso under the Will.
131 There were aspects of James' evidence under cross-examination which I found unhelpful. He was at times evasive. He was also by his own admission endeavouring at times to predict where the cross-examiner was heading and to compete with the cross-examiner rather than to provide frank answers. Having said that, I did not form the view that he was deliberately giving dishonest evidence and I consider that reasonable allowance must be made for the fact that he was conducting the case by himself in terms of submissions, cross-examination and examination-in-chief and also re-examining himself. Given that it became apparent that it has been a very difficult time for him in terms of his financial, physical and emotional health, his inability to deal succinctly with issues arising in cross-examination was partly due to the effects on him of those events and the trial process despite being afforded substantial latitude.
132 James repeatedly admitted his failure to treat his sister appropriately and there was ample objective evidence to support that. At various times Preston Point had substantial funds from which Anna could have been paid. At 30 June 2000 it appeared to have $125,413 cash in the bank. Preston Point raised over $1.5 million on loans against Lots 53 and 54 from the bank and from Branksea Pty Ltd. Anna received none of these funds. They were disbursed to companies in what James described as his "corporate empire" to deal with what were clearly serious financial difficulties being experienced by those companies.
133 I will not repeat much of which is common ground in relation to the evidence of either Robert or Mr Peter Rowe.
134 They both gave evidence essentially in the contribution proceedings but were also cross-examined on topics going to the original claim as well as the contribution proceedings.
135 Robert confirms attending the reading of Bortolo's Will which he thought might have been sometime in the middle of 1985. He was handed a copy of the Will during that meeting and that was the first time that he had seen it. He recalled reading the Will after the meeting in 1985 and as a result formed the understanding that Caterina was entitled to reside in the family home on the property until her death, at which point the portion of the Property referred to by Bortolo as the "riverfront lot" was to be transferred to him. He understood that the portion of the Property referred to by Bortolo as the "back lot" was to be transferred to Anna and the remainder of the Property was to be transferred to James. Other assets required distribution under the Will and by the end of 1985 those had been distributed in accordance with the terms of the Will. The Property then remained the sole asset of Bortolo's estate and after 1985 Robert had no occasion to look at the Will.
136 During the middle of 1998 James called a meeting at the property. It was attended by himself, Anna and Caterina and James produced the Deed. No copy or draft of the Deed had been seen by Robert prior to the meeting. Robert was unable to recall any discussion concerning the Deed and that there was only a short time to peruse the Deed and sign it. Robert said that at the time of signing the Will he understood that Recital F to the Deed properly reflected cl 4. At that stage he had no recollection of the proviso to cl 4 of the Will which required that the subdivision of the Property should be carried out so that each of the lots taken by himself, Anna and James should be as near as possible to equal an area. I also infer that he did not recall the proviso that if that were not possible to achive such subdivision within two years of Caterina's death then the Property was to be held by each of the three children as tenants in common in equal shares.
137 Robert said that he understood the effect of the Deed was to extinguish Caterina's life interest in the Property so that James, Anna and he would receive the land devised to them under the Will. Anna confirmed that she and James had reached an agreement with Caterina in relation to her future accommodation. Robert said that he was not involved in that agreement. He noticed that the Deed had been signed by a firm of solicitors and assumed therefore that Recital F accorded with cl 4 of the Will. He, too, like Anna trusted and relied on James because of his considerable commercial experience.
138 After Caterina's death on 2 July 1999 the "back lot" and the "home lot" were duly transferred to Preston Point as James' nominee in accordance with the Deed but no property was transferred to Anna and no property has ever been transferred to Robert. In late 2000 Robert approached James and asked him to transfer the "river front lot" to him as required under the Deed. James told Robert that he would not sign the transfer and said that there was an agreement in relation to a height restriction over development of the front lot and unless Robert agreed to sign a restrictive covenant confirming that arrangement that James would not sign the transfer. Robert says in fact that there was never any agreement to that effect.
139 After speaking with James, Robert visited Mr Rowe and told him of the conversation with James and asked Mr Rowe for a copy of the Will as Robert could not find his copy. Mr Rowe gave Robert a copy of the Will and referred him to solicitors for advice.
140 Robert took legal advice and became aware for the first time that the terms of the Deed did not fully reflect those of cl 4. On 18 December Robert wrote to James advising him of the substance of the advice he had received and asking him for a response. James responded promptly but rejected that the trustees were in default. Robert therefore instructed his solicitors to issue proceedings which occurred on 27 March 2001. He says he commenced proceedings because he believed it was his duty as a trustee to do so. He acknowledges that the person substantially disadvantaged by the Deed was Anna.
141 Since 1998 Robert has paid all rates and taxes accruing in relation to the "river front lot" which was bequeathed to him under cl 4. In relation to the visit to the archive section of DOLA to obtain a copy of the original subdivision, Robert says that this occurred after some general discussion between James, Anna, Caterina and himself in relation to the development of the whole of the Property. That plan, however, did not proceed. The development he said had nothing to do with the Deed or with the arrangement reached between James and Anna. Contrary to the evidence of James, Robert said he had no part in retaining John Giudice & Associates in relation to subdivision of the Property. He says he had no involvement at all in the preparation of the new subdivision plan for the Property. No evidence was called by James to support his contention that Robert was involved in this way.
142 In relation to the suggestion by James that he would contribute something in the order of $150,000 to the development at No 67, Robert denies ever agreeing to make any such contribution or being otherwise involved in the development at No 67. At that stage, in any event, he had just purchased a unit in James Street, Fremantle, and would not have had funds to contribute to the development of No 67.
143 Mr Rowe is a chartered accountant and had provided accountancy services to Bortolo from 1980 through to March 1985. He confirms the meeting on 9 May 1985 at his office where he read the Will to the family members in attendance. His usual practice would be to provide copies of the Will to those in attendance but cannot recall doing so. He has no recollection and I infer no discovered note suggesting that anyone present expressed difficulty in understanding the terms of the Will.
144 Mr Rowe was contacted by James in 1998. James advised him that the beneficiaries wished to change the terms of the Will and, in particular, wished to alter the rights of the beneficiaries in relation to the Property thereby requiring an amendment to their entitlements under cl 4. James explained that his solicitors were preparing a Deed to reflect the agreement which had been reached between the beneficiaries. James did not give him specific details of that agreement.
145 After the conversation he later spoke with James' solicitors to enquire as to whether it was possible for the beneficiaries by mutual consent to agree to a variation of the terms of the will and recalls being informed that this was possible. However, after this discussion he contacted James and told James that he would not sign the Deed unless all of the beneficiaries agreed to the terms of the Deed and had signed it first. He said that since their Property was the last asset of Bortolo's estate he, Mr Rowe, would resign as an executor and would seek a release and indemnity from all of the beneficiaries. James indicated that a release and indemnity would be included in the Deed.
146 Some time later Mr Rowe received the Deed executed by all of the beneficiaries. He believes he received a copy of the executed Deed in late 1998. He assumed that they were all aware of the terms of the Will, including the provisos. The basis of that belief was that he had read the Will to the beneficiaries in 1985 and believed that each of them either had or had access to a copy of the Will. Before executing it he also contacted Caterina to ensure that she understood the consequences of the Deed. He was concerned about Caterina as the Deed had the effect of extinguishing her life interest in the Property. He was not particularly concerned about the other beneficiaries since the Deed provided that their entitlements under the Will could be advanced. He was satisfied that from what Caterina told him that she understood the terms of the Deed and she was happy with them.
147 Mr Rowe also advised Caterina of Anna's position under the Deed and Caterina explained to him that Anna was also happy with the terms and effect of the Deed. Mr Rowe asked Caterina for contact details of Anna and she provided him with a telephone number. He was unable to contact Anna and then contacted Caterina again by telephone. Caterina confirmed that Anna worked shift work for a hospital but that she was confident that Anna was agreeable to the terms of the Deed so he did not pursue the matter further.
148 Mr Rowe had also taken into account the fact that the Deed was prepared by a firm of solicitors and that it had been executed by all beneficiaries. On the basis of this he took it that between the solicitors and the beneficiaries all were aware of the terms of the Will and accepted that the Deed reflected the fully informed agreement between the beneficiaries. On that basis he also executed the Deed.
149 I accept, without hesitation, the evidence of Mr Rowe in all respects. I have already commented in similar fashion about the evidence of Anna. As to James I have some reservations about some aspects to which I refer below but generally was much less concerned about the way he gave his evidence than I was about the manner in which he discharged his duties which are the subject of the proceedings.
150 I also accept the evidence of Robert. In particular, and I think of some significance, I accept his denial in cross-examination that Bortolo had ever spoken to him about the front lot or the riverside lot. The significance of this, as I see it, is that although it may have been clear in James' mind what the description in the Will referred to, Robert would not have had any basis at the time of reading the Will for inferring that the portion of land he was to receive under the Will was the lot or lots nearest Riverside Road on the subdivision that had been planned in 1975. There is no evidence that Robert was involved in that subdivision exercise. When Robert and Anna had heard the Will being read, it is entirely likely that they heard the proviso that the land was to be sub-divided if possible as nearly as possible to three equal shares but not until after the death of Caterina. There would have been little occasion for Robert to have considered the matter prior to the execution of the Deed.
151 Had the Deed not been executed, the trustees would have met to see whether they could agree upon the intended sub-division of the property which corresponded with the description of the three lots described in cl 4 of the Will taking into account the proviso that the subdivision be as nearly as possible to equal in area.
152 If it was not possible within two years of the death of Caterina to so subdivide, then the Property was to be held by them as tenants in common in three equal shares for the three children. Nothing in the Will conveyed the notion that the family house had to be preserved after the death of Caterina. Clause 4 descriptively refers to the land on which it is actually built as being a lot and suggests that the land both at the front and the back of it would be the other two lots but the first proviso makes it clear that the trustees were to strive to ensure near equality of size in the sub-division of the Property. There has been no evidence to suggest that such a sub-division could or could not be achieved but there is no reason to think it could not be achieved. In any event if it could not be, within two years of the death of Caterina, then the trustees were to hold the land on trust for the three children as tenants in common in equal shares. Again the emphasis was on equal ownership of the Property.
153 However Lot 53 at 1,949 square metres was much bigger than any of the other lots and while it does include a portion of the handle of the battle axe which would be the driveway, nevertheless in size it is nowhere near equal to the other lots as contemplated by the Will. The subdivision which was achieved in 1975 or the subdivision which replicated it many years later were each very different from the description of nearly equal shares, as provided for under the Will.
154 It was submitted by Mr Bennett for Anna that James' demeanour in the witness box together with the fact that he has not compensated Anna in the six years which have passed since Caterina's diagnosis became known, should lead to a specific finding that James had acted dishonestly at the time of procuring execution of the Deed and subsequently. Even if James was mistaken as to the terms and effect of cl 4 of the will, he nevertheless acted dishonestly by taking a transfer of Lot 54 when the parcel of land could easily have been transferred to Anna and by failing to account to Anna for any of the proceeds of sale of No 67, which failures occurred despite almost weekly visits to his office by Anna between August 1999 and September 2000.
155 It was suggested in effect that the manifest failings and breaches by James after execution of the Deed should lead me to infer that the whole process starting with the procurement of execution of the Deed was part of a larger dishonest or fraudulent scheme.
156 It was certainly true that James acknowledged the obvious, that he had treated his sister most unfairly.
157 I also find that he persistently evaded confronting Anna in responding to her reasonable requests.
158 He admitted pondering the meaning of the first proviso in cl 4 "three or four years ago and wondering what it meant" but did nothing about it. It is clear that James understood other aspects of the Will, as did the other beneficiaries as they pertained to the Property including the fact that Caterina had a mere life interest in the Property.
159 James' version of events was that he knew what Bortolo wanted and the provisos to cl 4 were only there if there was any argument. He said:
"I generally knew what Dad meant because he went to a lot of pains and trouble to tell us what he meant. He did a previous subdivision, he left the numbers behind and he had paid for the sewerage so he knew he would never pay for the same thing twice. Generally everyone expected that's what was to happen and we thought in case something didn't happen or there was an argument or something that was one of those clauses that takes care of that."
Albeit that this construction of the proviso or provisos is in my view quite incorrect, I do not treat this passage of evidence as being supportive of James acting dishonestly in relation to the Deed itself.
160 My attention is also drawn to James' attempt to blame emotional trauma for his failure to account to Anna, saying when he learned of his mother's terminal illness that he was "absolutely devastated ... and walked away from the opportunity to look after [his] mum and [his] sister". The reality however is that James caused Moneta to sell No 67 for $817,000 on 11 February 2000 from which Moneta derived a pre Capital Gains Tax gain of $266,333 and a taxable gain of $133,166. None of that money was paid to Anna despite her visits to James on a weekly basis.
161 I also note that James informed Mr Rowe that the parties had agreed to the terms of the Deed prior to its execution when in fact this was not the case. However, again, if James honestly but mistakenly believed that the Deed simply reflected his father's wishes as expressed in cl 4 and if the agreement of the beneficiaries to which he was referring was in part the loose arrangement that he had already reached with Anna concerning No 67, then the information given to Mr Rowe can be understood. It was not accurate, but I cannot conclude that it was deliberate dishonesty.
162 In the end though, I am not persuaded by the argument that because moneys were not paid in the years which followed the entry into the Deed, that the procuring of the parties' execution of the Deed was dishonest in itself. I do not believe that those events prove that James had a state of mind other than that expressed in the portion of the evidence above. That state of mind was mistaken but I do not believe that the subsequent events (particularly the failure to pay funds to Anna) prove that at the time of procuring execution of the Deed James knew that Sch F did not reflect cl 4.
163 There is no doubt in my view that James failed in his duty as a trustee and there is no doubt that he should have consulted with his fellow trustees, at least in relation to the terms of the Deed, and permitted them the opportunity to examine drafts of the Deed and if they did not have access to the Will to permit them the opportunity to examine the Will. Then there are the later serious breaches in his dealing with the trust property. I am not persuaded, however, that these factors necessarily prove any dishonesty at the earlier stage.
164 I have considered the dishonesty submission carefully. It was quite properly and appropriately made. But I also take into account that James was an unrepresented litigant and some of the statements that he made in court were very much looser than would be expected of counsel or indeed of a party represented by counsel. Further, no part of the pleaded case against James expressly asserts dishonesty or fraud. Additionally, it is not an ingredient of the cause of action at law or in equity that dishonesty be established. It is clear that James, and until shortly before trial his advisors, came to court to meet a case of breach of duties but not one which in terms accused him of fraud or dishonesty.
165 I also take into account however that despite the grave inadequacy of James' performance as a trustee, he was clearly, and I accept, genuinely distressed at his failure to look after his sister. As freely as he admitted that fundamental failing, he was equally passionate that whatever errors he had made, particularly in the context of the content of the Deed, were not made dishonestly.
166 Moreover, and perhaps more importantly in cross-examination, while it was squarely put to James that he was guilty of much moral turpitude in the manner in which he treated Anna in particular and Robert to a lesser degree, I do not perceive it as having been put squarely to him that he was fully aware that the Deed did not reflect the terms of the Will at the time he gave instructions to his solicitors for the drafting of the Deed and that he deliberately concealed from the other parties to the Deed the true terms of the Will in order to gain a benefit for himself.
167 Rather more apt I think was a passage of cross-examination in which it was put to James that he had just assumed that or was convinced that the effect of cl 4 in its entirety was the same as the earlier sub-division. I conclude that this proposition was correct and that this is in fact what occurred. It illustrates a negligent reading of the provisions but not necessarily dishonesty.
168 An additional reason for declining to find dishonesty is that the Deed is a document which contains a deal of technical information. It seems improbable to me that the solicitors drew it without access to the Will which they described. If they did have access, then it would appear that the content of Recital F as drawn by the solicitors contains the same error of which James was guilty and that is in assuming that the meaning to be attributed to the lot descriptions in the cl 4 corresponded with the 1975 subdivision, subsequently reflected in the later subdivision into Lots 51, 52, 53 and 54.
169 Given that fraud or dishonesty was not pleaded, that it is not necessary for the relief sought by Anna and Robert and that it would be a serious conclusion to draw against an unrepresented litigant in those circumstances, I decline to make a finding that in relation to the preparation of the Deed and the manner in which it was executed that James was acting dishonestly.
170 I consider that James and Anna were both entitled to about one third of the Property. James through Preston Point took far more than that, gave Anna nothing other than a promise which has not been honoured and has not transferred any part of the Property to Robert as he should have done.
171 In my view James has clearly breached his duty as a fiduciary. Preston Point, James' alter ego, knowingly took the benefit of that breach. His breach could either be characterised as stemming from the manner in which he purchased the Property as a trustee, or by the purchase as a trustee of a beneficiary's interest in the Trust Property.
172 The transfer of Lot 54 by Anna to James for only a promise which has not been honoured deals with one aspect of the matter, but there is also a residual portion of property being the difference between Lot 54 and her approximately one third interest in the Property. Lot 54 is 842m2, whereas the one third interest in the Property would be one third of 3908m2, namely 1303m2 to the nearest square metre. There is, therefore, subject to one qualification, an additional 461m2 to which she would be entitled over and above Lot 54. The qualification is that a now hypothetical subdivision of the Property to produce hypothetical lots "as near as possible to equal area" should take into account the excision of any land that may have been necessary to preserve access to the middle hypothetical one third lot. There was no specific evidence on this point but as a matter of common sense, it seems improbable that Bartolo had in mind a subdivision that resulted in there being no access to the middle lot. Evidence on the effect of a proper subdivision into lots of almost equal size taking into account any requirements of access to the middle block or other practical issues would be necessary in my view. The area of a driveway, for example, would simply be deducted from the total area of the Property before carrying out the calculation as to the size of each of the notional one third lots.
173 Of course James took the residual interest as well as Lot 54 and has not accounted to Anna or to the Estate in any respect for that additional interest. James has not transferred to Robert the interest to which Robert is entitled.
174 James has given Anna nothing for Lot 54, let alone the residual interest. Where a trustee purchases a trust property from the beneficiary and the court reviews the transaction, the onus shifts to the trustee, in this case James, to establish:
(a) that he gave full value for the interest unless it is proven that the beneficiary intended to make a gift to the trustee, in which case it must be shown that the beneficiary knew of the value of the gift;
(b) that before the purchase by the trustee he disclosed all information which could affect the judgment of the beneficiary;
(c) that if held a position in relation to the beneficiary which resulted in the beneficiary reposing confidence in his judgment he gave to the beneficiary the full benefit of his judgment; and
(d) that the beneficiary, although not necessarily having independent advice, was operating at "arm's length" from the trustee
- "Jacobs Law of Trusts in Australia", 6th ed at [1747] and Coles v Trecothick [1804] EngR 88; (1804) 32 ER 592 at 597 and see LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; (2002) 26 WAR 517 at:
"[89] In Coles v Trecothick [1804] EngR 88; (1804) 9 Ves Jun 235; 32 ER 592 at 597 at 247 Lord Eldon said:
' ... a trustee may buy from the cestui que trust, provided there is a distinct and clear contract, ascertained to be such after a jealous and scrupulous examination of all the circumstances, proving, that the cestui que trust intended the trustee should buy; and there is no fraud, no concealment, no advantage taken by the trustee of information, acquired by him in the character of trustee.'
[90] A fiduciary is not bound to account for a gain derived by virtue of his position if the fiduciary can show that the principal gave informed consent. The onus of proving consent is on the fiduciary - Birtchnell v The Equity Trustees Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384 at 398 per Isaacs J. The fiduciary has to show that there was 'full and frank disclosure of all material facts' - New Zealand Netherlands Society (Oranje) Inc v Kays [1973] 1 WLR 1126 at 1132.
[91] In this case, the trustee made a disposition of the property in a breach of trust procured by the deceased recipient. In such a case there can be two main remedies - one is a liability to restitute the trust property or its traceable proceeds and the other is a liability to pay equitable compensation to restore any loss of trust property or to account for improper gains."
For the following reasons I conclude that James has failed to satisfy me in relation to any of these matters.
175 As to (a), insofar as full value for the purchase of Lot 54 is concerned, there is agreed valuation evidence that Lot 54 was worth $345,000 in August 1998. The promise to transfer a property or properties to the value of Lot 54 at the time of signing the Deed which value was then fixed at $320,000 was never complied with. At the time of the execution of the Deed and the development of No 67, it may well have been that James intended to ensure that Anna received a good return on that development but of course this never happened. James kept the profit on the development of No 67 to himself but, again, arguably he was entitled to keep some of that money as he had developed the property and Anna no longer wished to proceed with the development at No 67. The fact of the matter is however that Anna has never received anything for Lot 54 or for the residual portion of the one third interest in the Property.
176 As to (b), clearly, James did not disclose the true terms of cl 4 of the Will and therefore perhaps the most important relevant information was not disclosed to Anna. This may not have been deliberate but the care exercised by James in the circumstances fell well short of that to be expected of a trustee especially given his involvement in the transaction.
177 As to (c) and (d), James gave no advice to Anna concerning the Deed but simply required her to sign it and, finally, there is no doubt at all that Anna depended heavily on James for his advice and he knew this to be the position.
178 I am conscious that James was a litigant in person but the questions he was asked on these topics in the course of his cross-examination were perfectly straightforward and I was left in no doubt that he had not discharged the onus required of a trustee in those circumstances.
179 It follows that each of the elements of the claim by Anna, Robert and Mr Rowe have been made out.
180 The Deed should be set aside and James should be required to reimburse the estate to the value of a one third interest in the Property as at the date of judgment.
181 I am not prepared or able to fix a figure for the current value of the Property. This is for three reasons. First there is the qualification to which I have referred. Secondly Anna's valuer gave only a generalised comment about the current value as distinct from the value three years ago and thirdly, there has been no opportunity for James to present his evidence in relation to the current value as the only evidence foreshadowed prior to the trial was the evidence of the value three years ago. There is some evidence of the valuers jointly agreeing values for Lots 53 and 54 but the state of that evidence and the state of the evidence on value generally, needs to be carried out with greater precision. I propose making an order for an inquiry to be made under O 45 of the Supreme Court Rules to enable a more accurate assessment to be made.
182 As I perceive it, one (only) of the reasons that reinstatement to the estate is a preferred opinion, is that by restoring the state of affairs to the extent as is possible, the distribution to Anna of the entitlement to which she was always entitled, would not, according to Mr Jolley, attract Capital Gains Tax. The other reason is that it is the appropriate remedy in equity.
183 I have referred to the expert evidence on this topic. It is submitted that if I determine that James should pay equitable compensation to Anna I should bear in mind the fact that Anna will be liable to pay Capital Gains Tax on any such sum by virtue of the analysis by Mr Jolley. It is submitted that the sum awarded in her favour should make provision for that liability, alternatively that Anna be indemnified for it.
184 As a step in considering that submission it is necessary to characterise the nature and consequences of equitable relief in these circumstances.
185 It is clear that had the breaches of the fiduciary duty by James not occurred, the loss to Anna would not have occurred. That is enough in my view to ensure that Anna is compensated in equity regardless of issues of foreseeability, or remoteness. I refer to the analysis of Ipp J in Permanent Building Society (In Liq) v Wheeler (1994) 11 WAR 187 at 246 - 248:
"The leading authority on the causation principles applicable to breaches of equitable obligations is the judgment of Street J in Re Dawson (deceased) (supra), that having been cited, with approval, by Brightman LJ in Bartlett v Barclays Bank Trust Company Limited (No 2) [1980] Ch 515 at 543 and by the Supreme Court of Canada in R v Guerin (1984) 13 DLR (4th) 321.
Although Re Dawson (deceased) dealt with the breach of a true fiduciary obligation, and not the breach of an equitable obligation to take care, Street J discussed cases of the latter kind and it must be taken that his remarks are applicable, generally, thereto. The relevant passage of his Honour's judgment is as follows:
'The obligation of a defaulting trustee is essentially one of effecting a restitution to the estate. The obligation is of a personal character and its extent is not to be limited by common law principles governing remoteness of damage. In Caffrey v Darby [1801] EngR 484; (1801) 6 Ves 488; 31 ER 1159, trustees were charged with neglect in failing to recover possession of part of the trust assets. The assets were lost and it was argued by the trustees that the loss was not attributable to their neglect. The Master of the Rolls, in stating his reasons, asked "will they be relieved from that by the circumstances that the loss has ultimately happened by something that is not a direct and immediate consequence of their negligence?" His answer to this question was that, even supposing that "they could not look to the possibility" of the actual event which occasioned the loss, "yet, if they have already been guilty of negligence they must be responsible for any loss in any way to that property; for whatever may be the immediate cause the property would not have been in a situation to sustain that loss if it had not been for their negligence. If they had taken possession of the property it would not have been in his possession. If the loss had happened by fire, lightning, or any other accident, that would not be an excuse for them, if guilty of previous negligence. That was their fault.'
Caffrey v Darby, supra, is consistent with the proposition that if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter. To the same effect is the case of Clough v Bond (1838), 3 My and Cr 490; [1838] EngR 949; 40 ER 1016. It was argued before Lord Cottenham LC, that 'the principle of the court is to charge persons in the situation of trustees as parties to a breach of trust, wherever they have acted irregularly, and the irregularity, however well intended, has, in the result, enabled their co-trustees to commit a breach of trust, or has been, however remotely, the origin of the loss.' ...
The principles embodied in this approach do not appear to involve any inquiry as to whether the loss was caused by or flowed from the breach. Rather the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach. ...
The cases to which I have referred demonstrate that the obligation to make restitution, which courts of equity have from very early times imposed on defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract. It is on this fundamental ground that I regard the principles in Tomkinson's case [1961] AC 1007 as distinguishable. Moreover the distinction between common law damages and relief against a defaulting trustee is strikingly demonstrated by reference to the actual form of relief granted in equity in respect of breaches of trust. The form of relief is couched in terms appropriate to require the defaulting trustee to restore to the estate the assets of which he deprived it. Increases in market values between the date of breach and the date of recoupment are for the trustee's account: the effect of such increases would, at common law, be excluded from the computation of damages; but in equity a defaulting trustee must make good the loss by restoring to the estate the assets of which he deprived it notwithstanding that market values may have increased in the meantime. The obligation to restore to the estate the assets of which he deprived it necessarily connotes that, where a monetary compensation is to be paid in lieu of restoring assets, that compensation is to be assessed by reference to the value of the assets at the date of restoration and not at the date of deprivation. In this sense the obligation is a continuing one and ordinarily, if the assets are for some reason not restored in specie, it will fall for quantification at the date when recoupment is to be effected, and not before.
It is to be emphasised that Street J, in saying that 'considerations of causation, foreseeability and remoteness do not readily enter into the matter', did not depart from the requirement that the beneficiary should prove that, but for the breach of duty by the trustee, the loss would not have happened. As his Honour said 'the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach.'
Re Dawson (deceased) was followed by Hill v Rose [1990] VicRp 13; [1990] VR 129 where Tadgell J said at 144:
'The obligation imposed by courts of equity upon defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort of breach of contract. It follows that the obligation is not limited or influenced by common law principles governing remoteness of damage, foreseeability or causation. The question for consideration is not whether the loss was caused by or flowed from the breach. Rather, as Street J put it in Dawson's Case at 215:
" ... the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach." ' "
186 Having identified the appropriate approach, the question remains as to whether I should take into account the effect of Capital Gains Tax in the manner contended for Anna.
187 Fedorovitch v St Aubins Pty Ltd (No 2) [1999] NSWSC 776 was an oppression case in which a share buy out was sought Young J observed that there was no direct authority of relevance to that case but declined to take Capital Gains Tax into account saying:
"In compensation cases the general attitude appears to be that the tax is not part of the compensation; see for instance Joondalup Gates Pty Ltd v Minister for Lands (1996) 33 ATR 327, a decision of Parker J of the Western Australia Supreme Court with assessors sitting as the Western Australia Compensation Court, and see also Russellan Pty Ltd v Roads and Traffic Authority (1992) 75 LGRA 263.
However, I believe the case that comes closest to the present is the decision of Rolfe J in Provan v HCL Real Estate Ltd (1992) 24 ATR 238. In that case the plaintiff was awarded damages for breach of fiduciary duty, he would have to pay Capital Gains Tax on that award and Rolfe J held that it was proper that the defendant pay the tax as part of the damages.
... The order set out in s 246AA(2)(e) leaves it completely open as to what the purchase price should be.
However, I do not believe that the proper approach to the section is to include in it any element of compensation. Although one can adjust the price for the conduct of the oppressor, or perhaps in the way Vincent J approached the matter in Bodaibo, one cannot or should not give compensation under the guise of an enhanced purchase price.
Accordingly, I do not consider that I can add to the value of the shares a factor for Capital Gains Tax."
188 In Joondalup Gate Pty Ltd v Minister for Lands (1966) 33 ATR 327, Parker J for the court, examined the authorities decided to that point and reached a similar conclusion saying:
"The claim seeks an additional allowance of 49.25 per cent of the compensation which would otherwise be awarded to indemnify the claimant for its potential liability to pay Capital Gains Tax. In its submissions this was varied to an additional allowance of 50 per cent.
For present purposes we will accept, without exhaustively examining the relevant provisions of the Income Tax Assessment Act 1936 (Cth), that the compulsory acquisition of the land resumed constitutes a disposal of an asset (part of an asset: s160R), which asset was acquired and disposed of after 20 September 1985 (s 160L(1)), and that any resulting capital gain (calculated in accordance with the Act cf s 160Z) is subject to Capital Gains Tax, although roll-over relief could be available to the claimant should the claimant incur expenditure in obtaining a replacement asset within the time specified: (s 160ZZK).
"Counsel for the claimant relied on general principles for the proposition that if the claimant was to be fully and adequately compensated for the loss of the land which was compulsorily taken its potential liability for Capital Gains Tax in virtue of the disposal by compulsory taking should be taken account of, and the claimant should be compensated for that liability. Reference was also made to some recent decisions where, in different contexts, courts have considered the impact of Capital Gains Tax on damages awards.
In Provan v HCL Real Estate Ltd (1992) 92 ATC 4644 and 24 ATR 238 where the claim was in contract, tort and for breach of fiduciary duty relating to dealings in land, Rolfe J (at 24 ATR 247-249) took the view that any effect on the judgment by the imposition of tax should, so far as possible, be removed so that the damages recovered were truly compensatory. He expressly saw that any liability to pay Capital Gains Tax was causally related to the breach of fiduciary duty. That is a case to which the equitable principle of restitutio in integrum was applicable. In Tuite v Exelby (1993) 93 ATC 4293 and 25 ATR 81 where the claim was for damages for breach of trade and damages for the reduction in the capital value of shares, Shepherdson J concluded that it was more likely than not that Capital Gains Tax would be payable on the disposal of the asset which constituted the breaches of the restraint of trade and that the plaintiff's liability to pay this tax because of the breaches was reasonably foreseeable by the defendant. Accordingly, Shepherdson J assessed the tax payable and included that amount in the damages awarded. In Carborundum Realty Pty Ltd v RAIA Archicentre Pty Ltd (1993) 93 ATC 4418 and 25 ATR 192 where damages were awarded for negligence in inspecting and reporting on the condition of a residential property Harper J refused to include a provision for liability for Capital Gains Tax in the award on the basis inter alia that Capital Gains Tax would have been payable by the plaintiff had the wrong not been done and should continue to be payable by the plaintiff. In Namol Pty Ltd v A W Baulderstone Pty Ltd (No 2) (1993) 93 ATC 5101 and [1993] FCA 606; 27 ATR 181 damages were awarded for breaches of copyright and breaches of fiduciary duty. The applicant also sought provisions with respect to its potential liability to pay Capital Gains Tax and for judgment as to that element to be stayed pending final determination of the amount of Capital Gains Tax which was payable. Davies J refused to make any allowance for Capital Gains Tax inter alia on the basis that to defer judgment or to make a conditional order would be inconsistent with the common law as to the assessment of damages which was to award a fixed sum having regard to the probabilities of the case and that it would not accord with the principles on which the assessment of damages proceeds to make adjustments for Capital Gains Tax.
In these cases both the nature of the wrong or harm and the purpose of the damages had relevance to the view reached. It was also relevant whether the damages were equitable or at common law. The Carborundum Realty Pty Ltd decision drew attention to the relevance of whether the damages were in respect of revenue or capital gains which would have been taxable in any event."
189 There have been subsequent decisions which in my view are all distinguishable from the present case.
190 This case is in my view, has similar features to Provan where the claim was inter alia for breach of fiduciary duty relating to dealings in land. Rolfe J (at 24 ATR 247-249) expressly saw that any liability to pay Capital Gains Tax was causally related to the breach of fiduciary duty. It is significant in my view that Provan was, like the present case one to which the equitable principle of restitutio in integrum was applicable.
191 Were it necessary to do so I would follow Provan and the reasoning expressed by Rolfe J that as a matter of principle, a plaintiff in a case such as the present would be entitled to recover any Capital Gains Tax payable provided "that it is causally related to the breach". In that case as with this case there was "no doubt that if Capital Gains Tax is payable as a consequence of the necessity to bring these proceedings and of recovering a judgment in them, that payment is causally related to the breach of fiduciary duty."
192 However the relief I propose ordering is in the nature of restitution by James to the estate as that appears the most appropriate remedy in all the circumstances for the reasons stated above. The remaining trustees of the estate would then distribute in accordance with the terms of the Will. It would seem on the expert evidence of Mr Jolley and the analysis that appears in the various cases dealing with Capital Gains Tax liability that such disposition would not attract Capital Gains Tax as the asset which Anna will receive will remain a pre-Capital Gains Tax asset. I have not been asked to make provision for Capital Gains Tax if restitution to the estate is ordered. In those circumstances, while I would have been disposed to grant an order that Anna be indemnified by James for any liability for Capital Gains Tax, I will not, unless it is pressed, make any such order. If counsel for Anna wishes to review this position, I will hear further argument.
193 In the course of his closing address James indicated that it would be better that he retired as a trustee and that he was prepared to do whatever was necessary to achieve that immediately. James put his resignation as a trustee on the basis that it would be better for the family if he stepped out of the picture. In any event it had been submitted to me that I should make an order that he be removed as a trustee, although I note that such relief had not been pleaded. Should it be necessary for such an order to be made at the time I deliver judgment I note that Mr Bennett has undertaken to amend the statement of claim in Anna's counterclaim to seek that relief and I will permit that amendment to be made before making such an order.
194 If James has not resigned as a trustee at the time I deliver judgment, I will make an order that he be removed on the basis of the following dictum from Dixon J (as his Honour then was) in Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 at 580 - 581:
" ... The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, and to the security of the trust property and to the efficient and satisfactory execution of trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the courts forms a judgment based upon considerations, possibly large in number and varied in character, which combined to show that the welfare of the beneficiary is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised."
195 James has been derelict in his duty in failing to understand the terms of the Will and has displayed a predisposition to advance his own interests ahead of those of Anna, including the taking through Preston Point of trust property which was gifted to Anna pursuant to the Will. Moreover, there has clearly been from the nature of this litigation and the demeanour of the witnesses which I have observed both while giving evidence and in the court, a breakdown of trust and confidence and an ongoing potential conflict of interest between James and the other beneficiaries of the estate.
196 I have referred to the claim by James that if he has breached his duty then Robert and Mr Rowe have also breached their duty as trustees and should contribute to any liability or indebtedness on the part of James. I am unable to accept this submission. Indeed, in some respects the opposite is the case.
197 A trustee who has profited from a breach of trust, as is the position with James, must indemnify his co-trustee against all liabilities. It follows that he would not be entitled to contribution against the co-trustees. This is particularly so where a trustee has received trust property and converted it to his or her own use: Ford & Lee: "Principles of Law of Trusts" at [13030] and Chillingworth v Chambers [1896] 1 Ch 685 at 690 - 691, 696 and 701 - 702. More recently in Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282 at 293 [18] at which, in the joint judgment of Gaudron A-CJ and Hayne J, their Honours held:
"In Dering v Earl of Winchelsea (1787) 1 Cox 318 at 320 Eyre LCB hypothesise that:
'If a contribution were demanded from a ship and cargo for goods thrown overboard to save the ship, if the plaintiff had actually bored a hole in the ship, he would in that case be certainly the author of the loss, and would not be entitled to any contribution.'
That example was given by the Lord Chief Baron in exposition of the requirement that, to obtain a contribution in a court of equity, the applicant should have 'clean hands'. However, the example his Lordship gave is one that directs attention to causation, in the sense of legal responsibility for the loss in question. The same consideration may have some bearing on the law's acceptance that contribution cannot be obtained if the person against whom contribution is sought is entitled to indemnity from the applicant."
To do so would have the result that the applicant would be unjustly enriched which is an outcome that equity would not countenance: Burke (supra) at [22] and [143].
198 James is clearly liable, as I have held, to Anna in his capacity as trustee for breach of trust or, alternatively, is liable to the Trust to restore property to the Trust. It is because he and Preston Point took a transfer of the Trust Property representing Anna's beneficial share under cl 4 of the Will. It would follow that if Robert and Mr Rowe were jointly liable to Anna with James or liable to compensate the Trust with James because of their pleaded failure to intervene, then James would be liable to indemnify both Robert and Mr Rowe against any such claim by Anna or by the Trust. James is not entitled to such contribution as either he or Preston Point would be unjustly enriched by receiving both the value of the land in the first place and also a contribution to its value from Robert and Mr Rowe respectively.
199 There is a further consideration and that is that cl 19 of the Will provides as follows:
"No trustee of this my Will shall be liable for any loss not attributable:
(a) to his or her own dishonesty; or
(b) to the wilful commission by him or her of an act known by him or her to be a breach of trust
and in particular he or she shall not be bound to take any proceedings against a co-trustee for any breach or alleged breach of trust committed by such co-trustee."
200 It is quite clear that the loss to the Trust Estate or to Anna does not result from any dishonesty on the part of Robert or Mr Rowe or the wilful commission by either of those persons of an act which they knew to be a breach of trust. I have already found that there was no dishonesty and no wilful commission on the part of either of those persons.
201 I have also indicated that I accept Robert's evidence that insofar as the dealings between James and Anna were concerned, he did little more than simply concur in that transaction, having little or no involvement in it. There is nothing in James' case nor in the evidence given by James despite ample opportunity to do so, which asserts in any sense dishonesty against Robert or Mr Rowe.
202 The position of Mr Rowe is a little different from that of Robert. Mr Rowe in his evidence made it clear that he was aware of the true effect of cl 4 of the Will but was presented with a Deed which had been fully executed by adult beneficiaries of full capacity and had no reason to believe that they had not given their fully informed consent to the Deed. It was clear that the Deed did have the effect of providing (had it been implemented) a better form of accommodation for Caterina and therefore any acceptance on the part of Mr Rowe's behalf as to the decisions taken by the signatories to the Deed was in my view reasonable.
203 I would not be prepared to find that either Robert or Mr Rowe did act in breach of trust in all the circumstances of this case but in any event they would have been entitled to the benefit of cl 19 which relevantly excludes them from liability in the handling of trust property when acting honestly. Accordingly, no contribution arising from the mishandling of the Trust Property would in any event be available against them.
204 In light of the foregoing there will be judgment for the first and second plaintiffs on their claim and for the plaintiff on the counterclaim. The contribution proceedings will be dismissed.
205 I propose making orders substantially in the following terms and I will ask counsel for Anna, Robert and Mr Rowe to liaise and if possible, bring in an agreed minute addressing any additional issues of detail and costs.
206 I will also hear the parties on the question of costs.
(a) confers benefits upon the first plaintiff (Robert John Miorada);
(b) confers benefits upon James Peter Miorada commensurate with his entitlement under the terms of the Will of Bortolo Miorada, dated 12 July 1984 (and admitted to probate on 28 June 1985);
the Deed of Family Arrangement between James Peter Miorada, Robert John Miorada, Peter Gilbert Rowe, Caterina Maria Miorada and Anna Maria Sanasi dated 26 February 1999 (the Deed), be set aside.
2. The first plaintiff (Robert John Miorada) shall be entitled to the transfer to him of the freehold estate in that property described in the Deed as "Lots 51 and 52" being respectively:
(a) Lot 51 - Portion of Swan Location 12 and being Lot 51 on Diagram 94735, and being the whole of the land described in Certificate of Title Volume 2167, Folio 497; and
(b) Portion of Swan Location 12 and being Lot 52 on Diagram 94735, and being the whole of the land contained in Certificate of Title Volume 2167, Folio 498.
3. Leave be granted to the plaintiff by counterclaim to further amend the counterclaim to seek relief which provides for the removal of James Peter Miorada as a Trustee and Executor of the Estate of Bortolo Miorada (deceased) and such removal be effective forthwith by this order.
4. The first defendant (James Peter Miorada) and the third defendant (Preston Point Holdings Pty Ltd) do jointly and severally pay to the Executors of the Estate of Bortolo Miorada, such sum as a Master of this Court finds upon an inquiry to be the value, as at the date of this judgment, of that land gifted to the second defendant (Anna Maria Sanasi) by cl 4 of the Will, namely as near as possible to one third of the land nearest Preston Point Road of what was formerly 63 Preston Point Road ("the Property") after taking into account any necessary practical consequences of subdivision of the Property to permit access to the middle notional one third lot of the Property.
5. The first defendant (James Peter Miorada) and the third defendant (Preston Point Holdings Pty Ltd) do jointly and severally pay to the Executors of the Estate of Bortolo Miorada such sum as a Master of this Court finds upon an inquiry to be the value as at the date of this judgment of the entitlement of that land gifted to the first plaintiff (Robert John Miorada) under the terms of cl 4 of the Will in excess of the area of Lots 51 and 52, namely as near as possible to the one third nearest Riverside Road of the Property after taking into account any necessary practical consequences of subdivision of the Property to permit access to the middle notional one third lot of the Property.
6. The Executors of the Will do
a. upon receipt of the sum referred to in order 4 pay that sum to the second defendant (Anna Maria Sanasi) within 7 days of its receipt. The sum to be paid to the second defendant (Anna Maria Sanasi) shall be paid without deduction, and any balance held by the Executors after payment of any outstanding creditors or expenses, is to be paid to the first plaintiff (Robert John Miorada) in part payment of the sum referred to in order 5 and
b. and do within 28 days of this judgment transfer Lots 51 and 52 to the first plaintiff (Robert John Miorada).
7. The contribution proceedings brought by the first defendant are dismissed.
8. There be costs orders as follows.
Miorada & Anor
Miorada & Ors [2005] WASC 105
(1996) 67 FCR 361
(1955) 94 CLR 216
(1996) 134 FLR 440
(1996) 186 CLR 71
(2002) 209 CLR 282
(2002) 26 WAR 517
(1936) 54 CLR 572
(1984) 3 FCR 68
(1994) 68 ALR 509
(1994) 11 WAR 187
(1995) 184 CLR 102
(1993) 13 WAR 11
(1984) 154 CLR 178
(1994) 13 WAR 124
(1996) 41 NSWLR 158
(1997) 19 WAR 224
(1998) 45 NSWLR 262
(1992) 26 NSWLR 666
(1998) 143 FLR 467
(1913) 16 CLR 245
(1994) 68 ALJR 509
(1924) 34 CLR 160
(1929) 42 CLR 384