Napoli v Napoli and Wood as executors and trustees for the estate of the late Mario Robert Napoli

Was a trust relationship created concerning the property?

1. Clause 11 of the Will provides: I ACKNOWLEDGE that the home standing in my name at McMasters Beach has been held in trust by me for my mother JOAN NAPOLI. My mother purchased the property from me with an inheritance that she received from her father's estate and that money was then used by Larelle and myself to purchase the property A1 Kelburn Road, Roseville. I STATE that Larelle and I have no interest whatsoever in the McMasters Beach property.
2. The question is whether the acknowledgement in clause 11 is sufficient, viewed alone or with other evidence, to demonstrate that the Deceased held the Property on trust for his mother.
3. In this case, the key evidence that might suggest a trust is derived from the words in clause 11 of the Will itself. The general approach to construing a will is the same as that which applies to the construction of other private legal documents: Farrelly v Phillips (2017) 128 SASR 502 at 509-510 (Stanley J; Kourakis CJ and Nicholson J generally agreeing). The will is to be construed as a whole: see, eg Sidle v Queensland Trustees Ltd (1915) 20 CLR 557 at 560-561 (Isaacs and Powers JJ).
4. The object of construing a will is to discover the intention of the testator expressed in the will and not the testator's subjective intention: Farrelly v Phillips (2017) 128 SASR 502 at 510 (Stanley J; Kourakis CJ and Nicholson J agreeing).
5. The process of construction proceeds from the language of the will, aided by such facts as existed and were known to the testator at the date of the will which it is permissible to take into account in interpreting that language: King v Perpetual Trustee Co Ltd (1955) 94 CLR 70 at 78 (Dixon CJ, Williams, Webb, Fullagar and Taylor JJ); Succession Act 2006 (NSW) s 32.
6. The Will was prepared shortly after the Deceased's diagnosis and in the context where the Deceased was involved in an unresolved matrimonial property dispute with his ex-wife, Larelle Napoli, which is referenced in clause 3's contextual recital in the following terms: I MAKE this Will prior to formalising a Family Law property settlement with Cherie Larelle Napoli (Raymond) (LARELLE) with the intent that the effect of this Will is that, taking into account the property that LARELLE has in her name solely and the property that will be left to her under this Will, she will hold approximately one half (1/2) of the matrimonial asset pool and my children DAVID ROBERT NAPOLI, ANNA NICOLE NAPOLI and MICHAEL LUKE NAPOLI will hold equally the other one half (1/2).
7. Some members of the family suspect this clause might have been drafted to prevent Larelle Napoli from making a claim to the Property in any matrimonial property settlement.
8. Clause 4 makes a gift of real property in Lindfield. It commences with the operative words "I GIVE". Clause 5 also makes a gift of real property in Hornsby. It commences with the operative words "I GIVE".
9. Clause 6 expresses the Deceased's intent to leave his interest in his superannuation fund to his children. The Deceased noted that he made a Binding Death Nomination to give effect to that intention.
10. Clause 7 makes a gift of his legal practice to his sister, Joan Mary. It commences with the operative words "I LEAVE".
11. Clause 8 sets out a condition to the gifts to his ex-wife. Clause 9 sets out recitals as to circumstances of the D & J Napoli Trust No 1. Clause 10 gifts the shares in the corporate trustee for the D & J Napoli Trust No 2. Clause 12 expresses the Deceased's intent that the benefits under his life insurance policy be paid to his children. Clause 13 gifts the residue to the Deceased's children. Clause 13 commences with the operative words "I LEAVE".
12. Clause 11 is therefore quite different, as it does not purport to make a gift of the Property. Neither does it record an inter vivos transfer. Such a transfer would not require the language of a trust at all because the transfer would establish a legal interest.
13. The plaintiffs submit that the recital appears to have been intended to provide for a situation in which the Deceased might pass away prior to finalising a property settlement with his former wife and to protect the MacMasters Property from being at risk of inclusion (and perhaps division), which may explain the reference to his former wife not having any interest in the Property. The actual matrimonial property settlement is not in evidence, nor any of the arguments raised in the negotiations between the Deceased and Larelle.
14. There are various ways a trust relationship can come into existence. H A J Ford and W A Lee in The Law of Trusts (4th ed, loose-leaf, Thomson Reuters) at [1.250] explain the nature of express trusts: Trusts expressly created (or "express trusts") arise where someone positively intends to create a trust. Trusts and their predecessors, uses, came into being because owners of property positively intended that an item of their property should be held for the benefit of particular persons or for the advancement of a purpose. The positive intention may have been shown by statements on the part of the creators of the trusts which disclosed that they appreciated the nature of a trust. But a positive intention to create a trust may be inferred from statements which are less explicit. As Gageler J said, in Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; 12 ASTLR 306; 89 ALJR 340; [2015] HCA 6 at [109], the relevant enquiry is "whether the recognition and enforcement of a trust is appropriate to give effect in law to entitlements and obligations which the parties, according to ordinary principles of contractual interpretation, can be taken together to have intended to exist in fact". Whether the intention appears readily or only after lengthy consideration, the trust is said to be expressly created in the sense that the creator of it is taken to have adverted to the trust relationship and to have wanted to establish it. See also Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd [2022] NSWSC 144 at [394] (Ward CJ in Eq, as the President then was).
15. The principles applicable to express trusts are settled. For example, in Pascoe v Boensch [2008] FCAFC 147, Finn, Dowsett and Edmonds JJ set out a summary at [20]-[22] (citations omitted): (i) Essential to the voluntary creation of any express trust, whether arising by declaration or transfer, is that the trust itself satisfies the three certainties … ie there must be certainty of intention to create a trust; certainty as to the subject matter of the trust; and certainty as to the objects (or beneficiaries) of the trust … (ii) Though there is no required formula to be used to create a trust …the declarant must manifest an intention presently to create a relationship in respect to property which the law characterises as a trust…The intention must be one actually had… and it must be to create an immediately operative trust… An intention that the trust be constituted at a later date will be ineffective to create a trust either at the time of the declaration or at that later date. The ultimate onus of proving the intention to create a trust rests on the parties seeking to propound it … (iii) The requirement that there be certainty as to the beneficiaries of a trust is tied to the supervision and control that courts exercise over trusts: a court might be called upon to administer a trust or to direct the distribution of it to some person or persons. …
16. The first sentence of clause 11 appears to be an acknowledgement that the MacMasters Property "has been held", in the past tense, on trust for his mother. The second sentence of clause 11 explains how the trust over the MacMasters Property came about, namely by Joan Napoli's purchase of the Property. Viewed in this light, the subject matter of the trust is the Property, and the beneficiary of any trust would be Joan Napoli.
17. The question is whether the Deceased manifested the requisite intention.
18. The trust relationship was said to arise because the Deceased's mother "purchased the property" from the Deceased, which would suggest that the Deceased was a constructive trustee of the Property for his mother pursuant to the uncompleted sale agreement and his mother would have an equitable interest under a "vendor purchaser constructive trust". The nature and form of such a trust is unsettled: see, eg, Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 330-331 (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ).
19. However, there is no evidence of any uncompleted sale agreement and any payment of purchase money by the Deceased's mother. The plaintiffs submit, and I accept, that on the evidence the reference to the "inheritance" can only reasonably be a reference to a 1990 sum of $130,000 which was given to the Deceased by his mother. The mother's evidence was that the sum was "gifted" to assist the Deceased with his family, and that the Deceased "accepted this". The sum was not referable to the purchase of the Property, which had been purchased by the Deceased in 1979; the gift was not used towards the Property at all. The Deceased's mother also expressly denies purchasing the Property or the creation of any trust in her favour.
20. Further, for a trust of real property to be created, the requisite intention must be documented in writing to comply with s 23C(1)(a) or s 54A of the Conveyancing Act 1919 (NSW). There is no evidence of part performance, sufficient to overcome the legislative requirements.
21. All of the evidence of the Deceased's conversations with his children and his sister were to the effect that he owned the Property. It is also consistent with the Deceased: 1. asking his sister to draft the Second Will, in which the Property was gifted to his children; 2. paying to improve and maintain the Property, pay outgoings; and 3. controlling who used the Property.
22. There is no evidence of any other person contributing to maintenance and improvements of the Property.
23. The evidence is also that the Deceased was a competent and experienced solicitor, who understood the requirements to ensure the enforceability of any trust. For example, he had drafted multiple trust deeds and wills for family members. He also kept a "deed pack" for himself and maintained trust deeds and other legal documents for his family. In those circumstances, the non-existence of any written document or trust deed over the Property tells against any trust having been declared by the Deceased.
24. Finally, to the extent that clause 11 was a declaration of an intention that the Property was to be held on trust in the future, the words do not convey any immediately operative disposition of an interest in property. A declaration of trust not made with consideration and intended to operate at a future time is ineffective: Harpur v Levy (2007) 16 VR 587 at 601 (Neave JA). Even if the Deceased's mother's gift of $130,000 in 1990 could be characterised as consideration, clause 11 does not stipulate the time at which the trust arises. If the trust was to arise on the entry into a sale and purchase contract in respect of the Property, that is not met on the evidence.
25. Based on all the evidence, I accept that the beneficial interest in the Property had been with the Deceased at all relevant times until 16 July 2020.

Has there been an effective disclaimer of the property?

1. In the alternative, the plaintiffs submit that the Deceased's mother has disclaimed any beneficial interest in the Property.
2. A beneficiary of a trust may disclaim a beneficial interest in the form of a gift on its coming to their knowledge, and such disclaimer operates retrospectively: Commissioner of Taxation v Ramsden [2005] FCAFC 39 at [30] (Lee, Merkel and Hely JJ). A disclaimer need not be effected by a formal deed; any evidence of actual dissent is sufficient: Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394 at 401-402 (Latham CJ).
3. Here, the Deceased's mother has sworn an affidavit denying she ever purchased the Property or gave the Deceased any money towards the Property, but also expressly disclaiming any interest in the Property, should there be a finding of a trust relationship.
4. In the circumstances, even if my conclusion that there is no trust relationship concerning the Property is incorrect, there has been a disclaimer by the Deceased's mother, such that the Property remains part of the Deceased's estate.

Ought the declarations be made?

1. In CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999 at [624]-[627] I set out the principles concerning declarations: 624 The issue here is whether, as a matter of largely unfettered (but not unlimited) discretion, declaratory relief should be ordered: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582 (Mason CJ, Dawson, Toohey and Gaudron JJ) (Ainsworth); see also Hobart International Airport Pty Ltd v Clarence City Council [2022] HCA 5 at [32] (Kiefel CJ, Keane and Gordon JJ) (Hobart International). 625 No single principle is necessarily determinative for a declaration to be made. As Young JA observed in Nicholls v Michael Wilson and Partners [2010] NSWCA 222 at [132] (appeal allowed, but on other grounds): It is now clear that the court has very wide jurisdiction to make declaratory orders. It is also clear that the court, in its discretion, may determine that it is inappropriate to make a declaration. … Because the matter is one of the exercise of discretion, special facts in a particular case may mean that the discretion is exercised other than in accordance with "principle". 626 Courts should not grant declarations where the declarations "will produce no foreseeable consequences for the parties": Ainsworth at 582 (Mason CJ, Dawson, Toohey and Gaudron JJ) or where the declarations will be divorced from the facts and be theoretical and hypothetical: Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at 356-7 (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ); Palmer v Ayres (2017) 259 CLR 478 at 491 (Kiefel, Keane, Nettle and Gordon JJ).
2. The defendants do not suggest that the plaintiffs lack standing, that the application for declarations was not justiciable, or that there was no proper contradictor: P W Young, Declaratory Orders (2nd ed, 1984, Butterworths) at 60 [702].
3. While it may have been open to the executrices to seek judicial advice concerning the administration of the Deceased's estate, the plaintiffs have instead sought declarations seeking to have certainty as to whether the Property forms part of the Deceased's estate. The defendants are the proper contradictors, even though they have filed appearances submitting to the making of all orders sought.
4. However, the plaintiffs' evidence includes an affidavit of Anna Napoli, one of the Deceased's children, in which she deposes: 1. The Deceased married his former wife in 1981; 2. They separated in 2007; 3. Their relationship was acrimonious in 2018, when the Deceased was trying to reach a property settlement with his ex-wife; 4. The Deceased told Anna in 2020 that he had discussed the Property with his former wife and she agreed that the Property ought to be bequeathed to their children.
5. Further, in her affidavit sworn 9 May 2023, Larelle Napoli, who would have been the only other contradictor, deposed: It has always been my understanding that the MacMasters Beach Property belonged to Robert. … I consent to the relief sought in the Summons as I believe it will result in Robert's wishes being carried out. … I have no objection to the Court making the orders and declarations sought in the Summons filed 10 February 2023.
6. While not conclusive to the exercise of the Court's discretion, I note that there is no evidence of any relevant person resisting the declarations sought.

Orders

1. In the circumstances I consider it appropriate to make the orders sought by the plaintiffs in the summons: 1. Declare the whole of the property comprised in folio identifier 53/239414 in Newell Road, MacMasters Beach (the Property) was legally and beneficially held by Mario Robert Napoli from the time of its purchase on 17 October 1979 to 16 July 2020. 2. Declare that Joan Napoli at no time has had any interest, legal or equitable, in the Property. 3. No order as to costs.

Amendments 07 June 2023 - Correction to cover sheet 08 June 2023 - Correction to cover sheet 29 July 2024 - 29 July 2024, correct citation at [42]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 July 2024