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[2018] VSC 274
General information, not legal advice.
Supreme Court of Victoria
2018-06-21
Daly AsJ
Original judgment source is linked above.
[2018] VSC 274 Revised 26 October 2018
TRUSTS - Discretionary family trust - Defendants are the brothers of the plaintiff and were directors of trust in relevant period - Whether an earlier resolution resulted in an immediate vesting of the trust assets - Later resolution passed at directors' meeting to distribute majority of trust proceeds in equal shares between the two defendants, to the exclusion of the plaintiff - Later resolution recorded in minute - Whether the later resolution constituted a valid distribution of the trust capital and income under the Deed - Whether the trustee exercised its discretion to pay the whole of the trust capital and income to the defendants in good faith, on a real and genuine consideration, and for proper purposes - Consideration of scope and criteria for a challenge to a trustee's exercise of discretion - Attorney-General (Cth) v Breckler (1999) 197 CLR 83, referred to - Karger v Paul [1984] VicRp 13; [1984] VR 161, referred to - Scope of a trustee's immunity from disclosing reasons for the exercise of discretion - ; , referred to - Relevance of evidence of surrounding circumstances and subjective understanding of parties to assessing whether a trustee is acting in bad faith or for an improper purpose - , referred to - Finding that earlier resolution not effective to vest trust assets for the purposes of the Deed - Finding that later resolution had effect of distributing trust income to defendants with the effect that, in the absence of rectification, the balance of the trust assets ought to have been equally distributed to the parties - Finding that later resolution was made in bad faith and for an improper purpose.
EQUITY - Whether rectification available - Defendants had intended to wind up trust and distribute a specified sum being the trust account balance to themselves as beneficiaries in equal shares - Resolution failed to achieve that result - Defendants sought rectification to give effect to their actual intentions - Consideration of availability of remedy of rectification - Domazet v Jure Investments Pty Ltd [2016] ACTSC 33, referred to - The Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] VSCA 2; (2001) 3 VR 526 - Finding that rectification is available to the defendants.
1 The parties in this proceeding, which concerns a family trust, are siblings. The plaintiff is Patrizia Trani ('Patrizia'), and the defendants are her brothers, Marco Trani ('Marco') and Luciano Trani ('Luciano'). Their parents were Gino Trani and Caterina Trani.[1] Marco was born in 1961, and is now 57 years old. Luciano was born in 1966, and is now 52 years old. Patrizia was born in 1967, and is now 51 years old. Both Marco and Patrizia have children, and Luciano is married without children. Caterina died in March 2011, and Gino died in January 2017.
2 In 1955, Gino purchased a property in Sydney Road, Brunswick ('Sydney Road property'), from which he established and operated a pizza business, which he ran for the next thirty years. In or around 1985 the pizza business was sold. Gino and Caterina retained the Sydney Road property, and over time also purchased three additional investment properties.
3 By a deed of settlement dated 23 July 1997 ('deed'), the Gino and Caterina Family Trust was established with Latina Investments Pty Ltd ('Latina' or 'the trustee') appointed the trustee of the Trani Family Trust ('trust'). The Deed established a reasonably conventional discretionary trust, in that the trustee was given wide powers to manage the trust, and a broad discretion to make distribution of trust income and capital to nominated beneficiaries. The Deed prescribed two classes of beneficiaries: the primary beneficiaries, being Gino, Caterina, Marco, Luciano and Patrizia, and the general beneficiaries. The primary beneficiaries were also members of the class of general beneficiaries, the balance of which were largely the spouses and descendants of the primary beneficiaries.
Subject always to any express provision to the contrary contained in this Deed every discretion vested in the Trustee shall be absolute and uncontrolled and every power vested in him shall be exercisable at his absolute and uncontrolled discretion and the Trustee have the like discretion in deciding whether or not to exercise any such power. The Trustee shall not be responsible for any loss or damage suffered by the exercise of any discretion or power conferred on the Trustee or by failure to exercise any such discretion or power.
5 In December 2001, various documents were executed to effect the removal of Gino and Caterina as appointers and beneficiaries of the trust and Marco, Luciano and Patrizia were appointed as appointors of the trust. By reason of clause 17 of the Deed, the appointers have the power to remove and/or appoint trustees to the trust.
6 ASIC extracts for Latina reveal that Marco was the original sole director and secretary of Latina from 23 July 1997 to 24 July 2003. On 24 July 2003 Luciano replaced Marco as director and secretary, and Patrizia was appointed as a director of Latina. Marco was reinstated as a director on 4 April 2011, and Patrizia was removed as a director on 11 April 2013. Up until 2003, Marco was the sole shareholder of Latina. After that date, Luciano became the sole shareholder of Latina in his place, and as such, from that time, retained ultimate control over the trustee.
7 Soon after the trust was settled, in around December 1997, Gino and Caterina gifted the Sydney Road property and their three investment properties to the trust. Latina, in its capacity as trustee of the trust, purchased an additional investment property in 2007, and in 2011 purchased the property adjoining the Sydney Road property.
8 Caterina died on 11 March 2011. Patrizia deposed that the relationship between herself and the defendants broke down irretrievably around the time of Caterina's death. She said that since that time they have been unable to agree on any matter concerning the trust. While Marco and Luciano deny that their conduct subsequent to that time was motivated by their animosity towards Patrizia, they agree that they are estranged from their sister.
9 The evidence suggests that up until March 2013, Patrizia was responsible for the day to day management of the affairs of the trust. Luciano spent much of his time interstate and overseas in his occupation as a professional soccer coach. While Marco gave evidence that from time to time he did some things in connection with the trust, such as inspection of properties for purchase by the trust, he had no real involvement in the affairs of the trust. Luciano and Patrizia were guarantors of loans obtained by Latina to fund the purchase of the additional properties purchased by Latina. The evidence on this point is a little unclear, but while there was a suggestion that between 2003 and 2011 there were some disputes between the siblings concerning the operations of the trust, I doubt that a firm conclusion could be drawn that the parties were in conflict prior to March 2011, when there was a disagreement between Patrizia and her brothers about the burial arrangements for their mother.
10 In the meantime, the financial position of the trust had become precarious, with the rental income from the trust properties being insufficient to service the loans used to fund the mortgage repayments for the additional properties purchased by the trust after 2007. However, a number of trust properties remained unencumbered. On 14 December 2012, Latina's accountant, Stannards, wrote to 'The Trustees' of Latina, care of Patrizia. Notwithstanding the above, it appears from the contents of the letter that it was written on the instructions of Patrizia, and directed at Marco and Luciano. The letter stated as follows:
RE: LATINA INVESTMENTS PTY LTD ATF THE G & C TRANI FAMILY TRUST
The Trustees have engaged our firm to provide an independent valuation as to the net worth of the assets of the G & C Trani Family Trust (the trust), with a view to negotiating a financial settlement with Luciano Trani (LT) and Marco Trani (MT) in exchange for LT & MT surrendering their respective interests in the trust.
BACKGROUND INFORMATION
The Trust was established on the 23rd July 1997.
Since its establishment the Trust has acquired a number of different properties. Most of the properties are rented to arms length tenants.
The property purchase was funded by Bank West and as at 30 June 2012 the Trust has debts outstanding to Bank West of $1,279,732.00.
The Trust is also indebted to Patricia Trani (PT) LT and MT. As at 30 June 2012 the Trust records a beneficiary current account owing of $275,850.00.
FINANCIAL INFORMATION
The Trust has engaged an independent property valuer to value each of the properties owned by the Trust. The valuations are set out below:
VALUATION CALCULATION
Based on the independent valuation for each property and the liabilities recorded in the Financial Statements for the Trust as at 30 June 2012 the valuation of the net realizable value of the Trust would be:
Realisation value of assets - (cost of realisation + cost to discharge liabilities) = Net realisable value.
This method has been adopted because the Trust has tangible assets that have an active market if they were to be sold.
$4,380,000 - ˆ 0 + *$1,555,582 = $2,824,418
ˆ Cost of realisation is zero because the Trust will not be disposing of any assets
* Liabilities consists of beneficiaries current accounts and Bank West debt as at 30 June 2012
Having regard for the market valuation of the assets of the trust and the beneficiary entitlements as at 30 June 2012 an appropriate valuation of the beneficiary entitlements of LT and MT is $941,472 each.
It is the desire of the Trustee that this offer and agreement be signed and executed by no later than the 15 January 2013.
The Trustee also requests that the property at 5 Manly Court, Coburg North be vacated by MT by no later than the 15 January 2013.
To assist with the relocation of MT the Trustee agrees to advance MT $5,000.00.
This report has been prepared for the beneficiaries of the Trust at the request of the Trustee. In preparing this report we have relied on source information provided to us by the Trustee and unaudited Financial Statements for the Trust as at 30 June 2012.
We have relied on this information being accurate and complete and we have no reason to believe that this is not the case.
Please contact me as soon as possible to discuss the settlement as offered by the Trustee.
11 On 24 January 2013 Stannards wrote to Robert James Lawyers (the solicitors for Marco and Luciano in this proceeding) as follows:
I refer to the letter sent to your client (sic) dated 14 December 2012.
In that letter your client was given until the 15 January 2013 to accept the offer put to him. The trustee, nor his office has had no response to this request.
Accordingly the trustee has advised that the offer for your clients (sic) interest in the trust has been revised to $771,472.
Would your client please accept or decline this offer by no later than Thursday 7 February 2013.
12 On 27 February 2013, RDV Business Solutions (an accounting firm engaged by Marco and Luciano) wrote to Patrizia on behalf of Marco and Luciano, as follows:
Marco Trani & Luciano Trani have engaged our firm to assist them as to provide a valuation as to the net worth of the assets owned by Latina Investments Pty Ltd as Trustee for G & C Trani Family Trust.
The following properties are not owned by Latina Investments Pty Ltd and so have not been included in our net asset valuation calculations below:
1. 5 Manly Court Coburg North
2. 331 Dromana Parade Safety Beach
As Marco Trani and Luciano Trani have not received copies of the valuations of the properties referred to in the letter from Stannards dated 14th December 2012 they have engaged a local agent to prepare an appraisal (letters attached) on what the current market value of the properties in question are:
In addition, after our discussions with Mario Incani from F. Bossio & Co Pty Ltd (Previous Accountant) and analysing the financial information provided for the purposes of the net asset valuation calculation below we have taken into consideration the loans and beneficiary loan account details of which are set out in Schedules 1 to 11 (attached).
VALUATION CALCULATION
= Property Value - Bank West Loan + Bank West Personal Use Loan + Personal Loan + Car Finance - Beneficiary Loan Account / 3
+ $3,840,000 - $1,285,982.00 + $43,867.00 + 17,000 + 19,436.00 - $47,080.00
= $2,587,241 / 3
= $862,414.00 each
OFFER
At the directors meeting on the 18th of February 2013 it was discussed that considering 5 Manly Court Coburg North & 331 Dromana Parade Dromana are of a similar value, Marco Trani & Luciano Trani take full ownership of 331 Dromana Parade which they already own 66% of, and you can discuss with your father ownership of 5 Manly Court Coburg North either via his Will or another arrangement. Marco Trani & Luciano Trani would not have anything further to do with 5 Manly Court Coburg North. If you agree to accept this offer you will need to sign a transfer of land for the title at 331 Dromana Parade.
In relation to the Trust assets, Marco Trani and Luciano Trani will agree to surrender their interests in the Trust on the following terms:
Marco Trani and Lucinao (sic) Trani consider this offer to be fair in the circumstances.
If you do not accept the above offer then a Directors Meeting will be held to discuss the potential sale of 839 Sydney Road Brunswick & 17 Catherine Street Coburg North to pay off Bank West and remove all debts from Latina Investments Pty Ltd with the sale proceeds.
Further to this Latina Investments Pty Ltd has not been charging your partner rent on 17 Catherine Street Coburg North for use of the property in connection with his business. Moving forward there will need to be a rental agreement in place at the market rate of rent as per a real estate agents appraisal which will also include outgoings. A rental agreement will need to be drawn up and the rental income can then service the debt that Latina Investments Pty Ltd has serviced to date.
A response to this letter is required by the 5th of March 2013. A Directors meeting will be scheduled pending your response to assess the position of the company moving forward. Marco and Luciano Trani will be discussing options with Bank West in due course and communicating the current issues to Kathryn Harrison the business banker at Bank West.
Upon an agreement of the above being entered into the loan with Bank West will need to be refinanced to remove Luciano Trani's guarantee from the mortgage. Control of Latina Investments Pty Ltd will pass to you and Marco Trani & Luciano Trani will relinquish all ownership of Trust assets over to you to control as well as any liabilities on the terms set above (sic).
14 A meeting of the directors of Latina was held on 15 March 2013. Patrizia, Marco and Luciano were in attendance, along with Mr Rocco Di Vitto[2] of RDV Business Solutions ('Mr Di Vitto'), Ms Andrea Pane of Robert James Lawyers, and Mr Nello Traficante of Stannards.
15 At the meeting the following resolution ('15 March resolution') was passed:
It was resolved that all properties referred to below and owned by the Trustee as trustee of the Trust be listed for sale on terms to be decided by the Trustee and for the Trust to be wound up:
9 Merlyn Street Coburg North - Agent to be Melbourne Commercial Group
5/45 Davies Street Brunswick - Agent to be Barry Plant
841 Sydney Road Brunswick - Agent to be Melbourne Commercial Group
839 Sydney Road Brunswick - Agent to be Melbourne Commercial Group
4/45 Davies Street Brunswick - Agent to be Barry Plant
17 Catherine Street Coburg North Agent to be Melbourne Commercial Group
16 The minutes of the 15 March 2013 meeting recorded the following discussion taking place prior to the passage of the 15 March resolution:
During discussions Patricia Trani indicated that she would offer to pay Luciano Trani and Marco Trani an amount to surrender their interests in the Trust. Nello Traficante asked Luciano Trani and Marco Trani as to what amount they would be prepared to accept and asked Patricia Trani what amount she would be prepared to offer. Patricia Trani indicated that she would need to consider it further before making any offer.
Luciano Trani also raised the matter of the property at 5 Manly Court, Coburg North owned by Gino Trani and property at 331 Dromana Parade, Safety Beach owned by the Directors of the Trustee and there was discussion as to these properties and the properties of the Trust.
Andrea Pane raised that there had been offers made by Nello Traficante on behalf of Patricia Trani which had not been accepted by Luciano Trani and Marco Trani and that by (sic) Luciano Trani and Marco Trani had made an offer to Patricia Trani to which she had not responded. Andrea Pane asked Nello Traficante and Patricia Trani whether they had considered the offer, to which they advised that they had not as the appraisals attached to the offer were not proper valuations. Andrea Pane again raised that there had been offers by Luciano Trani and Marco Trani and Patricia Trani, none of which had been accepted resulting in the proposed resolution to sell the properties owned by the Trust and to wind up the Trust.
At the conclusion of discussions Luciano Trani and Marco Trani voted in favour of the sale of all the properties owned by the Trustee as trustee of the Trust and for the Trust to be wound up and Patricia Trani voted against.
Luciano Trani will engage all relevant real estate agents to sell the properties after the meeting. A reserve price will need to be agreed upon prior to each sale.
17 Also on 15 March 2013, Mr Di Vitto was appointed as Latina's accountant, over Patrizia's opposition. Resolutions were also made to seek a commercial lease agreement for the trust property at Catherine Street, Coburg North ('Catherine Street') which was occupied by Patrizia's partner and used to store equipment in his earth moving business, again over Patrizia's opposition.
18 While the minutes of the 15 March 2013 meeting suggest that the matters on the agenda were discussed cordially and dispassionately, the presence of a solicitor at the meeting and the events which immediately followed the meeting indicated the existence of a substantial dispute between Patrizia on the one hand, and Marco and Luciano on the other hand.
19 Between 21 March 2013 and 4 April 2013, Patrizia lodged caveats over a number of properties owned by the trust, claiming an interest in the properties pursuant to a constructive, implied or resulting trust. On 4 April 2013, there was a further directors' meeting of Latina, where Marco and Luciano resolved to appoint real estate agents and set reserve prices for the trust properties, to appoint lawyers to prepare contracts of sale for the trust properties, to approach the bank about the trustee's proposed debt reduction plan, and to take steps to evict Patrizia's partner from Catherine Street. Patrizia did not attend this meeting, but a solicitor acting on her behalf did attend. One week later, on 11 April 2013, Patrizia was removed as a director of Latina by Luciano. Over the following months, legal action was taken to remove the caveats and to evict Patrizia's partner from Catherine Street. Marco and Luciano rejected two offers made by Patrizia and her partner to purchase Catherine Street for $550,000.00 and $500,000.00, but later sold Catherine Street at a lower price than the offers.[3]
20 By February 2014 all of the trust properties had been sold. The gross proceeds of sale of the trust properties was $3,092,135.65. After 11 April 2013, Patrizia had no involvement in the affairs of the trust. The uncontested evidence of Marco, Luciano and Mr Di Vitto was that by about March 2014 Marco and Luciano had decided to pay the balance of the proceeds of the sale of the trust properties, after payment of all of the debts of the trust, to themselves, and to pay nothing to Patrizia. Mr Di Vitto was instructed to give effect to this decision.
21 On 26 June 2014, a meeting of the directors of Latina (Luciano and Marco) was held at RDV Business Solutions' office, with Mr Di Vitto also in attendance. The capital balance of the trust's accounts, plus an estimated $2,500.00 in interest, totaled $1,408,370.70. The directors passed a resolution to pay unpaid present entitlements to beneficiaries totaling $52,003.00 and to distribute the remaining balance of the funds in the trust ($1,356,367.70) equally between Luciano and Marco ('26 June resolution').
22 The minute of the resolution ('26 June minute') stated as follows:
i. To Luciano Trani - $244,399.02; and
ii. To Marco Trani - $244,399.03.
23 What occurred next did not accord with the text of the 26 June minute, although a Deed of Vesting was executed on that day. Mr Di Vitto deposed that on 27 June 2014, the day after the meeting, he attended the Fawkner branch of the Commonwealth Bank with Marco and Luciano to close Latina's accounts and open three accounts in the names of Luciano, Marco, and Luciano and Marco jointly. The following amounts were transferred from Latina's accounts:
(a) $460,622.56 into Luciano's account;
(b) $452,122.56 into Marco's account; and
(c) $443,357.73 into the joint account.[4]
24 The total of the above amounts was $1,356,102.85.[5] The difference between the amounts paid to Marco and Luciano (Luciano being paid $8,500.00 more than Marco) reflected a prior agreement between Marco and Luciano. The amount of $443,357.73 transferred to the joint account was said to have been set aside for 'contingent liabilities' of the trust. While both Marco and Luciano did not accept that this was set aside to deal with a possible claim by Patrizia against the assets of the trust, this amount is just a little short of the amount that Patrizia would have received had the net balance of the trust fund been divided equally between her and her brothers.
25 Also on 27 June 2014, bank cheques were issued for payments to other beneficiaries of the trust, including Gino, and Patrizia and Marco's children. These payments were for modest amounts, totaling $52,003.00, and were payments of amounts which had been distributed to those beneficiaries in the accounts of the trust in past years, but had not actually been paid. These distributions were recorded in a spreadsheet headed 'Latina Investments Pty Ltd ATF G & C Trani Family Trust - Distributions to beneficiaries'.[6] The spreadsheet had some handwritten annotations and other markings. The totals in three columns were crossed out, being columns recording past distributions to Caterina ($18,000.00), Marco ($143,481.00) and Luciano ($33,227.00). Under Caterina's column there was an arrow and a notation 'Marco Executor of Will'. There is no evidence of any payments being made in respect of those distributions, and Mr Di Vitto gave evidence that they were subsumed within the final distributions to Marco and Luciano, notwithstanding the substantial differences between the prior distributions to Marco and Luciano. Finally, this spreadsheet indicates that no distribution has ever been made to Patrizia from the income of the trust over the lifetime of the trust.
26 Each of Marco, Luciano and Mr Di Vitto deposed that the 26 June minute contained an error, being the reference in paragraph 3(c) of the 26 June minute to amounts of $244,399.02 and $244,399.03 to be paid to Luciano and Marco respectively. This error is the basis of their claim for rectification of the 26 June minute. Each deposed as to their understanding of what the 26 June minute was expected to record, and Mr Di Vitto explained how the error occurred. More details of this evidence is provided later in these reasons.
27 Also on 26 June 2014, Marco and Luciano executed a document titled 'Deed of Vestment and Termination of Trust of the Gino and Caterina Trani Family Trust' ('Deed of Vestment'), prepared by Robert James Lawyers. Recital B of the Deed of Vestment states:
Pursuant to the Trustee's powers contained in the Trust Deed the Trustee hereby resolves to wind-up and vest the Trust and thereby terminate all functions, obligations and purposes of the Trust effective immediately on the Effective Date.
28 The operative provisions of this document provide as follows:
'The "Vesting Day" means the first to occur of the following dates, namely:
The date of expiration of the perpetuity period hereinafter defined;
Such earlier date as the Trustee may in its absolute discretion appoint.'
31 On 19 November 2014, Russell Kennedy, Patrizia's former solicitors, wrote to Marco and Luciano referring to the 15 March resolution, and requesting information concerning the winding up of the trust and Patrizia's entitlements as a beneficiary of the trust. Patrizia deposed that she did not receive a formal response to this letter.
32 This proceeding was commenced on 17 October 2015, originally by way of originating motion. There were difficulties in effecting service, and no substantive procedural directions were made until 31 March 2016. The proceeding failed to settle at a mediation on 20 May 2016, and on the same day, Marco and Luciano's solicitors issued a summary judgment application. This application was not pressed on that day, and on 2 June 2016 Lansdowne AsJ ordered that the proceeding continue as if commenced by way of writ, and that the parties file and serve pleadings. This duly occurred, and an amended statement of claim was filed and served pursuant to orders made on 1 February 2017. A further amended statement of claim was filed on 21 July 2017, and on 19 September 2017, the proceeding was listed for trial. A second further amended statement of claim was filed on 23 November 2017, a few days prior to the commencement of the trial. A defence to this claim and counterclaim was filed on the same time, raising for the first time a claim by Marco and Luciano for rectification of the 26 June minute.
33 In her second further amended statement of claim, Patrizia made the following claims:
(a) on 15 March 2013 Latina resolved to sell the trust properties and wind up the trust;
(b) on 26 June 2014, notwithstanding that Latina had already resolved to wind up the trust on 15 March 2013, Latina purported to wind up the trust and distribute the sums of $244,399.02 and $244,399.03 to Luciano and Marco respectively;
(c) the remainder of the capital and the income of the trust, being $867,304.80 was not distributed or dealt with prior to the Vesting Day, being 26 June 2014;
(d) the payment of $1,356,102.85 to Marco and Luciano was in breach of:
(i) the intention of the settlor and appointer of the trust;[7]
(ii) the trust, by reason of Clause 4.1 of the Deed; or
(iii) alternatively, if the 26 June resolution was valid, the deed required that the balance remaining after the distribution of the income of the trust, being $867,304.80, be distributed equally between Marco, Luciano, and Patrizia;
(e) by distributing the assets of the trust to Marco and Luciano in equal shares without Patrizia's knowledge, Latina acted in breach of the fiduciary duties owed by it to the beneficiaries of the trust;
(f) Marco and Luciano knowingly assisted Latina in its breach of trust, and its breach of fiduciary duty;
(g) Marco and Luciano knowingly received funds in breach of trust; and
(h) Marco and Luciano hold the sum of $452,045.00, alternatively $289,101.60 on trust for Patrizia.
34 In their defence and counterclaim, Marco and Luciano:
(a) admitted most of the factual matters alleged by Patrizia in her statement of claim, such as the holding of meetings, the resolutions made at meetings, and the payments made following the meeting on 26 June 2014;
(b) referred to the terms of the Deed, in particular to the character of the trust as a discretionary trust;
(c) denied that the effect of the 15 March resolution was to wind up the trust;
(d) said that on 26 June 2014 the trustee resolved to wind up the trust, distribute from the capital balance of the trust the sum of $52,003.00 in unpaid entitlements to beneficiaries, and distribute the whole of the capital balance and any income of the trust to Marco and Luciano equally;
(e) said that the dollar amounts in the 26 June minute were errors;
(f) said that the 26 June minute was signed by Marco and Luciano in the belief that it embodied the resolution in fact made on 26 June 2014 (as set out in (d) above);
(g) denied that the effect of the 26 June minute was to distribute the income of the trust, being $488,798.05;
(h) denied that the payments made to them on 27 June 2014 were made to them in breach of trust;
(i) did not admit that the trustee owed the beneficiaries fiduciary duties, and denied that Latina breached any fiduciary duties owed by it;
(j) denied that they knowingly assisted any breach of fiduciary duty by Latina, or received funds in breach of trust; and
(k) claimed that they are entitled to an order that the 26 June minute be rectified so as to embody the resolution actually made and the true intentions of them and the trustee.
35 In her reply and defence to counterclaim, Patrizia admitted that the trustee paid the sum of $673,801.42 to Mario and $682,301.43 to Luciano, but said that the trustee was not permitted to pay those sums, and there was no entitlement to have any resolution, or any minute of a resolution, rectified.
36 At trial, Patrizia relied upon her affidavit sworn on 6 October 2015 in support of her originating motion in this proceeding. The substance of her evidence has been largely canvassed in the introductory section of these reasons. Patrizia also deposed as follows:
Since around the time of my mother's death on 11 March 2011, the relationship between myself and both my brothers, Marco and Luciano, had broken down irretrievably and we were unable to agree on any matter concerning the operation of the Trust.
38 Marco and Luciano relied upon the following affidavits:
(a) affidavits sworn by Luciano on 5 May 2016 and 27 November 2017;
(b) an affidavit sworn by Marco on 27 November 2017; and
(c) an affidavit of Mr Di Vitto sworn on 27 November 2017.
39 One issue concerning the admissibility of evidence arose at the commencement of the trial. Senior counsel for Marco and Luciano submitted that the authorities made it clear that Marco and Luciano, as directors of the trustee of a discretionary trust, could not be compelled to give reasons as to why they exercised their discretion in the way that they did. As such, I ought not allow Marco and Luciano to be crossexamined as to their reasons for excluding Patrizia from the distribution of the assets of the trust. I acceded to that submission.
40 In his first affidavit sworn on 5 May 2016, Luciano deposed mainly as to formal matters, and the history and financial position of the trust. He deposed as to what occurred at the meeting on 26 June 2014, as follows:
On 26 June 2014, me and Marco as then directors of Latina held a directors meeting at which Marco and I:
(i) considered the Capital Balance;
(ii) resolved to distribute all of the Capital Balance;
(iii) considered the terms of the Trust Deed;
(iv) resolved to appoint a new vesting date for the trust, namely 26 June 2014;
(v) considered Latina's power under the Trust Deed to exercise the discretions permitted by the Trust Deed to distribute the Capital Balance;
(vi) considered the potential beneficiaries under the Trust Deed; and
(vii) resolved to distribute the whole of the Capital Balance.
41 The evidence given by Marco, Luciano, and Mr Di Vitto at trial concerning what actually occurred at the meeting on 26 June 2014 indicates that the evidence above is somewhat misleading, insofar as it suggests that at the meeting the directors of Latina actively 'considered' the matters referred to in the 26 June minute. In his second affidavit sworn on 27 November 2017, the day before the commencement of the trial, Luciano deposed, in summary, as follows:
(a) he is a full time soccer coach, and does not hold any tertiary qualifications;
(b) after he and Marco became the only directors of Latina, they engaged Robert James Lawyers and Mr Di Vitto to assist them to manage and wind up the trust;
(c) by March 2014, once the trust properties had been sold and settled, he and Marco had spoken many times about which beneficiaries would receive money from the winding up of the trust;
(d) he deposed as follows:[8]
By early March 2014, Marco and I had decided to pay out all of the Trust's liabilities and then pay all the remaining money in the Trust to me and Marco. We had decided to not pay any money to Patrizia. In many discussions with [Mr Di Vitto] between March 2014 and June 2014, I told [Mr Di Vitto] that this was what we were going to do, and I wanted him to do what was necessary to achieve this and wind up the Trust.
In about early June 2014, me and Marco had sought advice from our solicitors about the trust and had instructed [Mr Di Vitto] to whatever was needed to pay out the Trust's liabilities and wind up the Trust. [Mr Di Vitto] was going to do the accounting work and would do everything that needed to be done to wind up the Trust, and to prepare whatever documentation was necessary to pay the balance of monies in the Trust to me and Luciano equally.
On 26 June 2014, I attended [Mr Di Vitto's] office with Marco to have our directors meeting. Marco and I, on behalf of Latina, had instructed [Mr Di Vitto] to prepare the accounting paperwork, to wind up the Trust and do whatever else was necessary to pay out all liabilities and pay the remaining monies to me and Marco in equal shares. It was always my intention to ensure that all monies left over in the Trust (after payment of all liabilities) were paid to me and Marco equally. From my discussions with Marco by that time, I knew that this was also his intention. I never intended, or decided, to leave any money in the Trust not distributed.
In his office, [Mr Di Vitto] explained to me and Marco that he had prepared Latina's financials and tax return, and had calculated roughly how much money was available to distribute to me and Marco. He made some hand-written notes on a piece of paper to show roughly how much Marco and I would receive after payment of all of the Trust's liabilities.
By that time, I knew that Robert James' legal bill had been paid, and [Mr Di Vitto's] bill had also been paid. I knew that there were other beneficiaries of the Trust who were owed about $52,000.00. [Mr Di Vitto] told us that there was a little over $1.3 million left over to pay to me and Marco. I took [Mr Di Vitto] at his word about how much money was available to pay me and Marco.
[Mr Di Vitto] also told us that he had completed the minute of the meeting that we were about to have.
We then went to the kitchen at the back of [Mr Di Vitto's] office to have our directors meeting. [Mr Di Vitto] put a bundle of papers on the table. The meeting then started. [Mr Di Vitto] handed me a copy of the minute he prepared. He told me to read the minute out aloud, and I did. The written minute was to me full of legal jargon, and I assumed that it contained everything it had to make sure me and Marco were having the meeting properly and complying with all the formalities needed to properly wind up the Trust, pay out all liabilities, and pay the whole of the capital balance of the monies to me and Marco.
After I read the Minute out aloud, [Mr Di Vitto] told me and Marco to sign the minute, and some other papers. We did so. I understood that to then be the end of the meeting.
Prior to signing the minute, I did not pay attention to the dollar figures in the minute. I just assumed everything in the minute reflected my instructions to [Mr Di Vitto], and everything we had to do to properly wind up the Trust. Now produced and shown to me and marked LT-1 is a copy of the minutes of directors meeting of 26 June 2014, which my solicitor showed me in the morning of 27 November 2017. Until that time, I had not seen a copy of the minute since the meeting on 26 June 2014.
I never agreed on 26 June 2014, or at any other time, that the only amounts we would be receiving from the Trust were the amounts in paragraph 7(c)[9] of the Minute. If [Mr Di Vitto] had explained to us that the dollar figures in paragraph 7(c) of the Minute was all we were going to get from the winding up of the Trust, I would have told him that was not correct, and I would not have signed the Minute.
(e) he deposed that he did not keep any copies of any of the documents he signed that day;
(f) in 2015 he collected the trust documents from Mr Di Vitto, which he provided to Marco to store at his house; and
(g) he deposed as follows:
When I re-read the Minute on 27 November 2017, I realized that it did not accurately identify all of the money that was to be distributed to me and Marco. It only covered some of the money that we were to receive on the winding up of the Trust even though Marco and I had decided to distribute the whole of the balance of the trust money equally between us. The written minutes was not (sic) accurate as it did not state that all of the money was to be distributed to me and Marco. It stated that Marco and I would receive only part of the trust money.
I assumed when I signed the minute on 26 June 2014 that it contained all that was necessary to give effect to my decision as to the distribution of the balance of the trust money to be divided equally.
42 Luciano was a director of Latina between 2003 to 2011, along with Patrizia, but he didn't contact Patrizia during this time about the operations of the trust, because he was absent from Australia for much of this period. He was unaware of what contributions Patrizia made to the operations of the trust during this time. He believed that he was only responsible for the affairs of the trust when he was present at directors' meetings. Luciano confirmed that he consented to all the transactions that Latina entered into on behalf of the trust during this period. He agreed that his parents effectively made decisions regarding the affairs of the trust.
43 Under crossexamination, Luciano gave the following evidence regarding his relationship with Patrizia:[10]
Your relationship with your sister broke down from the early 2000s, didn't it?--No, it didn't.
When do you say it broke down?---Your Honour, it never broke down.
You are still good friends with your sister, are you?---Always have been.
Is that a serious answer, Mr Trani?---Yes, Your Honour.
Can the witness be shown Exhibit 7 to the plaintiff's affidavit.
Do you recognise that document?---I am sorry, I need some more information. I am just looking at this page.
By all means, read through the document, have a look through the document.
...
MR HOYNE: Do you recognise that document?---Yes, I do, Your Honour.
It was an affidavit you swore?---That is correct.
It was true and correct at the time it was sworn?---That is correct, Your Honour.
At paragraph 59 you say, "Patrizia's relationship with Marco and me has irretrievably broken down because we had a disagreement about how the trust should operate", correct?---Correct, Your Honour.
That was correct at the time it was given?---Yes, Your Honour.
"I do not believe we can agree on any matter concerning the trust"?---Your Honour, there was things that we needed to look at.
That is what it says, doesn't it?---Yes, Your Honour.
I asked you a moment ago about - in fact, if you go to paragraph 43 you say, "Since about 2003 Patrizia, on the one hand, and Marco and I on the other hand, have generally been in dispute over the manner in which the trust was operated an what transactions were effected using trust moneys", correct? Paragraph 43?
...
MR HOYNE: Of course. You said that, correct?---Yes, Your Honour.
You said that your dispute with Patrizia escalated in 2010 because you thought she was mis-managing the trust financial affairs?---Yes, Your Honour.
I asked you a moment ago whether you were still good friends with your sister and you said yes you were?---Yes, Your Honour.
And you also, around about this time, brought proceedings on behalf of the trust against her partner to require them to remove property at Chapman Street, correct?---That is correct, Your Honour.
HER HONOUR: Is that Chapman Street or Catherine Street?---Catherine Street.
MR HOYNE: It was also around about this time that you decided to remove her - this is around April 2013 time to remove her as a director of the trustee company, correct?---That is correct, Your Honour.
44 Luciano was taken to the minutes of the meeting held on 15 March 2013. He maintained that, despite being taken to those parts of the minutes which recorded discussion between the participants in the meeting, the minutes were drafted prior to the meeting. He gave similar evidence with respect to the minutes of the meeting held on 4 April 2013.
45 Luciano's understanding of how the trust works appears somewhat limited. When questioned about the role of an appointor, he did not appear to understand what that role entailed, save that he agreed that he could not unilaterally change the trustee of the trust from Latina. He understood that he and Marco controlled Latina and confirmed that if he wanted to he could have removed Marco as a director too because he was the sole shareholder of Latina.
46 Luciano agreed that the sale price of Catherine Street recorded as $448,000.00 in his affidavit sworn 6 May 2016 may have been incorrect, and that based on the signed transfer of land document shown to him the sale price may have been $492,800.00. He was unable to provide any explanation for the discrepancy.
47 Luciano was unclear about the sale prices of the properties sold by the trust as well as the total amount received and the amount remaining after the bank debt had been cleared: 'I never went to that point of knowing what the total figure would be.'
48 Luciano confirmed that he read the 26 June minute aloud at the Latina directors' meeting on 26 June 2014.
49 Luciano stated that he and Marco had discussions prior to the meeting on 26 June 2014 to the effect that they decided to wind up the trust and divide the funds equally between them. He conceded that these discussions did not occur during the Latina directors' meeting on 26 June 2014 as described in the 26 June minute. However, Luciano maintained that genuine consideration of the trust and the beneficiaries took place during the meeting on 26 June 2014.
50 Luciano gave the following evidence under crossexamination:[11]
Mr Hoyne: Indeed, you say at paragraph 10 of your affidavit of 27 November that you sought advice from your solicitors about the trust. This is your affidavit of 27 November, paragraph
Luciano: Yes, I see it.
Mr Hoyne: What advice did you seek from them?
Luciano: Seeking information regarding trust deed and other relative information.
Mr Hoyne: It is fair to say that at the meeting of 26 June there was no genuine consideration about anything, was there, it was just a reading and then the signing of a document, correct?
Luciano: No, Your Honour.
My Hoyne: There was genuine consideration?
Luciano: Absolutely.
Mr Hoyne: You genuinely considered what at that meeting?
Luciano: The trust itself.
Mr Hoyne: Did you have a copy of the trust deed?
Luciano: Not in front of me at the time.
Mr Hoyne: You had it all recollected?
Luciano: From the information that I had sourced.
Mr Hoyne: What information was that?
Luciano: The responsibility of the trust deed.
Mr Hoyne: What was that responsibility, in your mind?
Luciano: That act accordingly and also to be able to exercise the discretionary trust.
Mr Hoyne: What does act accordingly mean?
[...]
Luciano: In order to run the trust correctly.
Mr Hoyne: What do you need to do in your mind to run a trust correctly?
Luciano: To go through the process legally, correctly.
Mr Hoyne: What does that entail? What do you need to do to legally - on your understanding, what did you need to do to go through the trust legally?
Luciano: To seek advice from the experts to be able to be guided as to what you can and can't do.
Mr Hoyne: What could you and couldn't you do?
Luciano: The things that we were able to do based on the information that we were allowed to do.
51 Luciano was aware of the need to take into account the beneficiaries of the trust which in his understanding were the family - the kids, being himself and his siblings. In response to questions regarding what consideration of the beneficiaries took place at the meeting on 26 June 2014, Luciano stated 'I knew that there were other beneficiaries of the trust who were owed about $52,000', stating 'me and my brother agreed to pay the beneficiaries.' Luciano conceded that at the meeting on 26 June 2014 he just read out aloud the 26 June minute but did not accept the proposition that no additional consideration was given to anything at the meeting.
52 Luciano gave evidence that his instructions to Mr Di Vitto were always that after the deduction of liabilities and the $52,003.00 to other beneficiaries that the balance was to be paid equally to himself and Marco. Luciano understood that despite these instructions he got paid more than Marco.
53 Luciano confirmed that at the meeting on 26 June 2014 he did not know the balance of the trust monies to the last dollar and cent.
54 When questioned as to when and what consideration was given to beneficiaries beyond Marco and Luciano, Luciano stated that other beneficiaries were considered but he appeared to be talking about the $52,003.00 payment only. He agreed that grandchildren and charities were not considered as potential beneficiaries. Luciano gave the following evidence:[12]
Mr Hoyne: When you came to the meeting of 26 June you decided at that point in time that Patrizia was to get nothing, correct?
Luciano: A decision was made in regards to all the beneficiaries.
Mr Hoyne: When was that decision made?
Luciano: During the meeting and before the meeting.
Mr Hoyne: When before the meeting?
Luciano: When discussions were being had beforehand, during a period of time, a month, regarding all these situations.
Mr Hoyne: Did you take into account Patrizia's financial position?
Luciano: I took into account all the beneficiaries.
Mr Hoyne: How did you know what Patrizia's financial position was?
Luciano: I don't know her personally, I don't know her situation.
Mr Hoyne: What about the financial position of her children, did you know about that?
Luciano: They were put into the account, in the beneficiaries.
Mr Hoyne: So on your understanding they got a distribution because they got part of the $52,000.
Luciano: Part of the responsibilities of the trust was to pay the beneficiaries and which were obviously the kids.
Mr Hoyne: In terms of the rest of it, the $1.35 million, did you take into account the financial positions of all of the kids?
Luciano: Yes, Your Honour.
[...]
Mr Hoyne: What charitable purposes did you take into account when you made your decision to pay the moneys to yourself and your brother?
Luciano: I don't understand the word "charitable".
Mr Hoyne: Did you take into account any charities that might be paid with the $1.35 million?
Luciano: After all the expenses that were paid to the debts and the liabilities, it was always instructed that myself and Marco would be paid.
Mr Hoyne: Did you take into account any grandchildren any of you might have in the future?
Luciano: No, no grandchildren. There was no discussion around that
[...]
Mr Hoyne: [...] when you came to consider the other beneficiaries, did you take into account the possibility of your wife?---
Luciano: My wife has got nothing to do with the trust.
Mr Hoyne: So you didn't contemplate the possibility of paying her anything?
Luciano: No. This has got - she's not part of the trust, the Latina Investment Trust.
55 Luciano conceded that the final capital balance of $1,408,105.85 was not known until after the meeting of 26 June 2014, so they were unable to consider that figure at the meeting.
56 Luciano conceded that no other beneficiaries were considered at the 26 June 2014 meeting:[13]
My Hoyne: And then you say you considered the potential beneficiaries under the trust deed. On the 26 June 2014 meeting, I put to you didn't consider any potential beneficiaries, other than yourself and your brother and the payment of the $52,000; correct?
Luciano: That is correct.
57 However, when the trial resumed the following day, Luciano appeared to resile from his earlier evidence:[14]
Mr Hoyne: [...]- to clarify some of the points we were dealing with yesterday, as I understand your evidence, I think it was that you considered who might get the proceeds of the trust at the meeting of 26 June?
Luciano: No, Your Honour.
Mr Hoyne: So you didn't consider at the meeting of 26 June who might get the capital and income of the trust?---
Luciano: We considered it before and during the meeting.
Mr Hoyne: I am going to be step by step. You did it at the meeting?
Luciano: Yes, Your Honour.
Mr Hoyne: The nature of your consideration at the meeting, was that the same type of consideration you gave before the meeting as well?
Luciano: Yes, Your Honour.
Mr Hoyne: The people who you took into account were yourself and your brother and your nephews and nieces, that's correct?
Luciano: Everyone was, including my sister.
Mr Hoyne: Sorry, and your sister. On your understanding, you decided to given the nephews and nieces 52,000?
Luciano: That is correct.
Mr Hoyne: Then you decided to give the rest of it to yourself and your brother?
Luciano: Yes.
Mr Hoyne: In relation to the rest of it, as in the $1.35 million, who did you consider might get that? Before you decided it was you and your brother, who did you think of that?
Luciano: I thought about everyone.
Mr Hoyne: Who is everyone?
Luciano: Everyone including the beneficiaries.
Mr Hoyne: Who, under your understanding, is everyone, including the beneficiaries, I need names?
Luciano: Myself, Marco and Patrizia.
Mr Hoyne: Those are the three you considered. And you decided not to give it to Patrizia?
Luciano: That is correct.
58 Luciano alleged that Patrizia used trust funds for her own private use and business use. He conceded that he was also in control of the trust and signed every document during the time he alleges that Patrizia was in control and using the funds for her own purposes.
59 Luciano gave the following evidence regarding the process by which he and Marco made their decision with respect to the distribution of the trust assets:[15]
At which point in time did you come to make the decision that you and your brother were going to get everything and Patrizia was going to get nothing?Can I have some time to look at - - -
You can have time in a moment but just right now, do you remember?I don't remember the exact time but the instructions were very clear, that the beneficiaries were going to get paid and myself and my brother were going to be paid equally.
Do you recall the discussion with your brother where that decision was made?---I don't have a time.
I am not asking that; I am asking a different question now. Do you recall that discussion with your brother?---Yes, in terms of the time, in terms of the - it happened, yes, we had a discussion.
Do you recall the discussion?---Discussion - we were sitting down and we spoke about it.
Where were you sitting down?---At home.
Whose home?---Family home, 5 Manly Court, North Coburg.
So you do have a clear recollection of this discussion?---There were a number of discussions around as to what we were going to do so it not only happened at Manly Court, North Coburg, it happened also at the accountant's office when the funds were being distributed.
But that was after this date. I am trying to focus on when this actual decision was made, correct? Sorry. Let me take that step by step. The discussions with the accountant were after this date. I am trying to focus on this point in time when this decision is made that you and your brother get everything and Patrizia gets nothing?---I don't recall the exact time and place, all I remember is we were sitting down and we were discussing it. I can't remember the time, I don't remember the date but I do recall that me and my brother, we spoke about it and said, look, this is what we are going to do and this is it. So that's how it was. I don't - like I said, before, this has been obviously a long journey, there was a lot of discussions, a lot of paperwork surrounding many discussions around that. I can't recall exactly every moment but I do, as I say, remember. It happened a number of times that those discussions, and it was always the beneficiaries would be paid as well as the end, the capital would be divided between myself and my brother.
What I suggest to you, sir, is what happened was - in fact I don't disagree with any of that. What I suggest to you transpired is that you and your brother decided that you were both going to take everything because you didn't have to pay Patrizia anything and so you decided, because you didn't have to, you weren't going to, correct?---No. That was an opportunity - we exercised our right in regard to the discretionary trust.
You had the right to include Patrizia and arrange of other people as well, didn't you?---I had the right to make those calls.
What I suggest, the reason you exercised that right is because you wanted the money; do you agree or disagree with that?---It was a shared - it was a trust that exercised its right with obviously the information that we had received.
The other reason that you exercised it in terms of particularly excluding Patrizia was because you weren't on speaking terms and you didn't like her any more?---No, Your Honour.
60 Luciano did not accept that the third of the trust balance of the trust fund was put into a joint account held by him and Marco in anticipation of Patrizia suing the trustee. He maintained that this money was set aside in case of unforeseen bills payable by the trust.
61 In re-examination Luciano confirmed that before the meetings of 15 March 2013 and 4 April 2013 he had received an agenda of the meeting and that what was on the agenda before the meeting was reflected in the actual resolutions of the meeting.
62 Luciano stated that Patrizia 'never attended any directors meetings held for Latina Investments Trust during my time.' He agreed that in the period 2003 to 2013 Patrizia was managing the affairs of the trust with input from Gino and Caterina.
63 In reexamination, Luciano was taken to paragraph 46 of his affidavit sworn on 17 April 2013. Paragraph 46 of this affidavit states as follows:[16]
Further, Marco and I believe that Patrizia has, over some years, used one or more of the Properties (being property of the Trust) as security for personal borrowings, to fund her own interests, expenses and lifestyle. For example, Marco and I have become increasingly concerned about the state of the Trust's beneficiary loan accounts. It is my understanding that sometime prior to 2010, Patrizia took out a Commonwealth Bank of Australia ('CBA') line of credit facility to fund the purchase of her home at 28 Eastgate Street, Pascoe Vale South Victoria. She subsequently refinanced that CBA facility with Bankwest, and used one or more of the Properties as security for the refinance. I understand that she needed more money to complete the construction of a new house on her residential property. However, I understand that the refinance of her CBA facility somehow caused a large increase in the beneficiary loan account of the Trust. I understand that Patrizia believes that the Trust owes her a significant amount of money. Now produced and shown to me and marked 'LT-15' is a true copy of an email chain between Mr Incani and Mr Di Vitto which contain references to this refinance as being the principal cause of an increase in the Trust's beneficiary loan account from $47,080.87 as of 30 June 2009 to $221,577.82 as of 30 June 2010.[17]
Luciano: This point, 46, Your Honour, is the point and the main issues and concerns we had over the control of the trust. It is only one example that - and the concerns of loans that had increased through private use.
Mr Panna: Private use by whom?
Luciano: By Patricia Trani for the home.
Mr Panna: How did you come to that conclusion? What information did you receive, and from whom, to come to that conclusion?
Luciano: We received it from her at the time, who was looking after the company's accountancy, who was asked, when he had forwarded on his paperwork on to the next firm, that the reason for that figure to have been raised was for a home in Pascoe Vale and that was the reason for the increase of loan.
Mr Panna: You said the increase. Can you look at the figures on the last sentence of that paragraph. Can you see that?
Luciano: Account from $47,000?
Mr Panna: Yes?
Luciano: $80.87.
Mr Panna: And it's gone to $221,577?
Luciano: That is correct.
Mr Panna: What was your concern about that increase in the beneficiaries loan account?
Luciano: I was not given any information regarding that.
Mr Panna: By whom?
Luciano: By Patricia Trani.
Mr Panna: Did you ask her why there was such an increase in that period of time?
Luciano: I recall the meeting. We were at the Bosseo's[19] as far as how the dealings - there was very little response as to the accurate situation of any of these transactions. It was met with, at times, very little clarity.
64 In his affidavit sworn on 27 November 2017 Marco deposed, in summary, as follows:
(a) while he has done some certificate courses, he did not complete year 12 and did not go to university. After school, he worked for a while in the family pizza business, and then pursued a career in hairdressing and massage, until he ceased work in about 2013 to care for Gino, whose health had deteriorated by that time;
(b) by early June 2014 he and Luciano had spoken many times about what they were going to do with the money in the trust. By that time they had told Mr Di Vitto on many occasions that he and Luciano had decided to pay out all liabilities, pay the rest of the monies in the trust to him and Luciano, and had decided not to pay any money to Patrizia;
(c) on 26 June 2014, he and Luciano attended Mr Di Vitto's office, where Mr Di Vitto told him and Luciano that they would both be getting over $600,000.00 each;
(d) he deposed as follows:
We then went into the kitchen at the back of [Mr Di Vitto's] office, and had our directors meeting at the table there. [Mr Di Vitto] opened the meeting. He handed me a minute of the meeting. I read it to myself whilst Luciano and [Mr Di Vitto] also read it.
I recall that at the time of reading the Minute prior to signing it, I saw the dollar figures in paragraphs (sic) 7(c) of the Minute, and thinking to myself that they must be a figure that [Mr Di Vitto] has (sic) put in for some reason. It was not my understanding at the time that I was going to receive $244,399.03 only from the Trust. I had in my mind that we would each receive over $600,000.
I thought [Mr Di Vitto] put these figures in for some reason, and I trusted he knew what he was doing, so I did not ask him about the figures. The rest of the Minute did not make much sense to me, and I did not understand some of the legal words in the document. But I did know that the meeting was about making the proper decisions as directors to make sure the Trust was properly wound up and that all the money was properly paid to me and Luciano, and not Patrizia.
(e) he did not recall whether Mr Di Vitto gave him a copy of the documents executed by him that day;
(f) Mr Di Vitto told him and Luciano that they should put some of the funds paid to him in a separate account to cover any future liabilities; and
(g) he deposed as follows:
I never intended to leave any money left over in the Trust. It was my intention, and my instructions to [Mr Di Vitto], that all the money in the Trust was to go to me and Luciano equally.
I would have next seen a copy of the Minute when I swore the affidavit of documents on 27 June 2017, but I do not recall actually reading the Minute that day. I next saw a copy of the Minute on 21 November 2017, when I saw my solicitor. I read the Minute that day. The dollar figures in clause 7 and resolution 3 were not what was paid to me and Luciano. These figures are not what me and Luciano had decided to pay to each of us. We had decided to pay all money left over to each other equally.
I assumed when I signed the minute on 26 June 2014 that it contained all that was necessary to give effect to Luciano's and my decision to distribute the balance of the trust money to each of us equally.
65 Marco's understanding of his role in administering the trust is even more limited than Luciano's in that he was vague about the role of the appointer of the trust, did not understand the difference between a director and a shareholder of a company, and he frankly confessed, unsurprisingly, that he did not understand the Deed.
66 Marco attributed his removal as director of Latina in 2003 to Patrizia despite him being the sole shareholder at the time. He conceded that his parents made the decision to remove him, and that he did not ask them why they made that decision.
67 Marco's account of the disagreement concerning his mother's funeral arrangements was slightly different to that of Luciano. He claimed that Patrizia wanted their mother cremated and that this was against his mother's wishes. Marco agreed that he and Patrizia haven't spoken since his mother's funeral in March 2011, and that they are estranged.
68 Marco confirmed that it was decided at the meeting on 15 March 2013 that the Trust was going to be wound up.
69 Marco was questioned as to whether any advice was sought or proffered on how the winding up of the trust might have been arranged more tax-effectively, and responded as follows:[20]
Mr Hoyne: Did you get any advice about the tax consequences of all of this?
Marco: Yes.
Mr Hoyne: And what was that advice?
Marco: To pay taxes.
70 Marco was taken to his affidavit of 27 November 2017, where he deposed that by early June 2014 he and Luciano had spoken many times about what they were going to do with the money in the trust. He was asked to elaborate on these discussions, and gave evidence as follows:[21]
Mr Hoyne: [...]After you got that advice, what were the discussions you then had with your brother about what would you would do with the money in the trust?
Marco: I just said, we would then look the an our (sic) options.
Mr Hoyne: Yes. And who said what to who?
Marco: That was a long time ago, I can't think of the speech.
Mr Hoyne: I am not asking for the exact words, I am asking for the substance of the conversation that you had with your brother?
Marco: The substance of the conversation would be to oversee all options.
Mr Hoyne: After you considered all options - what were all the options?
Marco: All options were all options.
Mr Hoyne: What were all of the options?
Marco: I can't recall now to give you all the options.
Mr Hoyne: What did you discuss as to what all the options might be?
Marco: Our legal standings, what we were legally bound to do, what we could do, what we couldn't do, what we needed to do, on what day to do it, on how to do it. All aspects, Your Honour.
Mr Hoyne: What did you discuss? I am trying to focus on the discussions you had with your brother. What was the nature of the discussions you had with him about what you could and could not do?
Marco: I just said, I just answered the question, about all the considerations of the information.
71 Marco was asked who the potential beneficiaries of the trust and he responded that it was the family which included himself, Patrizia, Luciano and 'all of the siblings and others'. This was clarified to mean his children and Patrizia's children. He said that no-one else was considered.
72 Marco gave the following evidence concerning the decision to distribute the balance of the assets in the trust to him and Luciano:[22]
You didn't consider the potential to distribute to anybody else?---No, Your Honour.
The decision you came to was to give it all to yourself and to your brother, correct?---The ultimate decision?
What factors did you take into account in coming to that conclusion?---Many factors.
What were they?---Legal factors.
What were the legal factors?---What we could do with our discretion, considering that the discretion of what it meant - - -
You say that, "I was entitled to do it"?---We could do under that discretion, yeah.
You were allowed to do anything so you decided to give it to yourselves?That's incorrect.
What factors did you take into account? You have just said legal factors, I am trying to work out what those legal - I am trying to work out what it was that made you decide to give it to yourself and your brother rather than all of these other potential beneficiaries, what were the factors you took into account?---The accountancy factors, the legal factor, the advice on other - on many other things.
73 Marco confirmed that the decision to pay everything to himself and Luciano was made before the meeting on 26 June 2014. He conceded that he had not factored the $52,003.00 in unpaid present entitlements to beneficiaries into his decision to pay everything to himself and Luciano.
74 When questioned on what factors he considered in deciding who to distribute the trust money to, Marco referred to 'accountancy factors' and elaborated as follows:[23]
Marco: Moneys that had been distributed in the past, who got things in the past.
Mr Hoyne: Who had got things in the past?
Marco: I don't know who got things in the past. We didn't have a record of who got what.
75 Marco pointed to 'transactions have gone from one account into Patrizia's account.'[24]
Mr Hoyne: So what payments do you say were made to Patrizia?
Marco: There was a loan of $50,000, a personal loan. And to my knowledge, now, there was $200,000 transferred from one account to another account, going to her personal house loans. There were loans payment dumped for car financing that I had to go through rigorously and pick out repayments.
76 When it was suggested to Marco that information was not disclosed in the financial accounts of Latina, he responded as follows:[25]
Well, I had accounts from Commonwealth that had been closed down and that's where I got my gist of where the moneys were transferred.
77 Marco gave evidence that he decided that, once the children were paid their unpaid entitlements, that was all that they were entitled to receive. He gave evidence as follows:[26]
... So your understanding was that the children got the $52,000 and there was nothing else to be given to them and then it sort of automatically - and because you excluded Patrizia, the rest of you have just flowed to you and your brother effectively, is that right?---Correct.
78 Marco gave evidence that he was provided with a copy of the 26 June minute before the start of the meeting. He gave evidence that, in contrast, the minutes of the meeting of 15 March 2013 had been prepared after the meeting.
79 Marco was questioned as to what transpired at the meeting on 26 June 2014. His understanding was that the figures appearing at paragraph 3(c) in the 26 June minute of $244,399.02 was a part of what he was going to finally receive, and he was aware that the final figure to be paid to him was in the order of $600,000.00.[27]
Mr Hoyne: You thought that the point of this resolution was to give you part of it but not all of it?
Marco: I thought that this resolution, this paper, was a stepping stone to the process of putting it all together.
Mr Hoyne: Did you understand that there needed to be a resolution of the directors for the amounts to get paid to you?
Marco: No, Your Honour.
80 Marco maintained that even though the 26 June minute was merely read aloud and signed at that meeting that the 26 June minute was 'an accurate portrayal of what proceeded' at the meeting.
81 Marco denied that he was motivated to not distribute any trust money to Patrizia because he didn't get along with her.
82 Marco agreed that the decision to pay each of himself and Luciano equally was not what actually happened, because Luciano received an additional $8,500.00.
83 Marco explained that the third of the funds which was put into the joint account was for the purpose of 'liabilities of people that may be suing us' and suggested that such liabilities may be in respect of construction work that they had done on the properties or other liabilities of the trust.
84 In his affidavit sworn on 24 November 2017, Mr Di Vitto deposed that he assisted Marco and Luciano:
in relation to the process of selling all of the properties, pay out all of the liabilities of the Trust, and anything else required to give effect to the winding up of the Trust.
85 Mr Di Vitto deposed as follows concerning the discussions he had with Marco and Luciano, and Luciano in particular, concerning the winding up of the trust:
By early March 2014, Latina still had various liabilities to pay, including GST, repairs to properties, legal fees payable to Robert James Lawyers, and accounting fees payable to [RDV Business Solutions]. Latina also had unpaid present entitlements (distributions of profit from previous financials years) which also remained unpaid. These outstanding liabilities were to be paid from the Business Transaction Account. I had a meeting with Luciano at my office about this time (early March 2014) to discuss the calculation and payment of these liabilities.
At this meeting, Luciano and I exchanged words to the following effect:
"After Latina pays out all liabilities, where do you want the balance of the monies in the Trust to go?"
"Marco and I have discussed this. We want all the money to be paid to me and Marco equally. Patrizia will not receive anything."
Between March 2014 and June 2014, I had other conversations with Luciano and/or Marco in which we discussed how all the monies in the Trust were going to be paid to Marco and Luciano equally, and nothing would be paid to Patrizia (the plaintiff in this proceeding). As a result of these conversations, by early June 2014 I was well aware that Marco and Luciano intended to pay all the monies in the Trust to themselves equally, and not pay anything to Patrizia. I was instructed to give effect to this.
By early June 2014, I was also aware that Robert James Lawyers had been retained by Latina to prepare any legal documentation to give effect to the winding up of the Trust.
86 Mr Di Vitto also gave evidence in some detail as to what took place at his offices on 26 June 2014, as follows:
The Summary showed that Latina's CBA Business Transaction account had a balance of $98,505.75, and Latina's Business Online Saver account had a balance of $1,307,365.04. These sums totalled $1,405,870.79.
Latina did not have any other liabilities outstanding to my knowledge, other than monies owed for unpaid present entitlements.
I then made a hand-written calculation of the total amount to be distributed to Marco and Luciano from the whole of the capital and income of the trust, being the $1,405,870.79 available in the accounts, plus my estimate of $2,500.00 in interest receivable for June 2014, which totaled $1,408,370.70. I hand-wrote that calculation on the Summary. After deduction of the cheques to some of the beneficiaries for unpaid present entitlements totaling $52,003.00, and noting all other known liabilities of the Trust had by that time already been paid in full, I calculated that the net amount available for distribution to Marco and Luciano was $1,356,367.70. I made hand-written annotations on the Summary reflecting this calculation.
Shortly prior to 4:30 PM on 26 June 2014, I had completed Latina's financial statements and its tax return. I opened the Draft Minute on my computer screen at my desk and completed the sections in yellow highlight. I used the Net Profit for Distribution amount ($488,798.05), divided it by 2, and inserted the sum of $244,399.02 for Luciano at clause 7ci and resolution 3ci, and the sum of $244,399.03 for Marco at clause 7cii and resolution 3cii.
At approximately 4:30 PM on 26 June 2014, Marco and Luciano attended my office to have the directors meeting.
We first sat in my office. I took them through the Summary, and my hand-written calculations annotated on the Summary.
I said to Marco and Luciano words to the effect: "I have only paid out the liabilities which I am aware of. I don't know what liabilities will come up later. I suggest you keep aside one third of the money to pay out liabilities which might come up. You should set up a joint account in your names for this." Marco and Luciano agreed to this. They also agreed that Luciano was to receive $8,500.00 more than Marco. Whilst sitting at my desk, and in front of Marco and Luciano, I then made further hand-written annotations at the bottom of the Summary, with 3 boxes showing how my figure of $1,356,367.70 was to be divided, namely:
(a) To Luciano - $460,622.56;
(b) To Marco - $452,122.56; and
(c) To Marco and Luciano (for the proposed joint account) - $443,622.64.
Marco and Luciano told me they agreed on these amounts.
I then said to them words to the effect: "OK, I will organize those payments to you. Let's move to the kitchen. I'll make a coffee and we can have your meeting there." The kitchen is located at the rear of my office premises. It has a table in the middle, at which I conduct a lot of my meetings with clients because of the nearby coffee machine. I picked up from my desk a copy of the unsigned Financials and tax return, copies of the Draft Minute which I had completed earlier, and a copy of a Vesting Deed which Robert James had emailed to me earlier that day for signing by Marco and Luciano. We then moved to the kitchen, and I put those documents on the table.
I made coffee for Marco, Luciano and me, and we all sat at the table. I took them through the Financials and the tax return, and I gave a copy of the Draft Minute, as completed by me, to Luciano and Marco. I said words to the effect: "Let's start the meeting." Marco and Luciano agreed.
"You should start by reading out the minute in full, word for word."
Luciano then read out the contents of the Draft Minute, as completed by me, in full, word for word.
I do not recall any discussion about any of the dollar figures in the Draft Minute (as completed by me) prior to Marco and Luciano signing it. Throughout the process of winding up the Trust, since March 2013, I believe they were accustomed to acting on my advice. I believed they trusted that I knew what I was doing, and that the paperwork was all in order.
I had a pen on the table. I directed Marco and Luciano to sign the Draft Minute (as completed by me). They proceeded to do so.
I also directed them to sign the Financials and the Vesting Deed. They did so.
87 Under crossexamination, Mr Di Vitto gave evidence that he and Luciano have been friends since he was about fourteen years of age.
88 Mr Di Vitto gave evidence that if he does query his clients how they have arrived at a proposed decision as to how to distribute the income and assets of a trust it is generally only with respect to whether there is a more tax effective way that it can be done. However, he maintained that he did not discuss the distribution in this case or its tax implications. He agreed that what took place was probably about the least tax effective way the trustee could have gone about winding up the Trust. Rather, Mr Di Vitto stated that Luciano wanted his money out of the trust as soon as possible, in order to clear the loans owed by the trust and get rid of the default notices.
89 Mr Di Vitto was taken to the financial statements for the trust for the year ended 30 June 2014. He was directed to the reference to the beneficiary loan account owing to the Trani family of $362,113.71 as at 30 June 2013, which was reduced to nil as at 30 June 2014. He believed this was repaid to Marco and Luciano.
90 Counsel for Patrizia took Mr Di Vitto through the financial statement and the table of unpaid beneficiaries entitlements and noted that the entitlements amounted to roughly $240,000.00 once Marco and Luciano's entitlements were included and asked where the other $120,000.00 was:[28]
Mr Hoyne: Where is the other $120,000?
Mr Di Vitto: I think that was in private drawings that come out earlier.
Mr Hoyne: To Luciano and Marco?
Mr Di Vitto: No.
Mr Hoyne: To who?
Mr Di Vitto: To Patricia.
Mr Hoyne: There's no - during the 2013 year, the people who were in control of the trust are Luciano and Marco. You're seriously maintaining that a payment was made to Patrizia when they didn't even talk to her and there is no evidence of having made such a distribution?
Mr Di Vitto: But to make that analysis, you need prior year financials, you can't just base that on 362,000.
Mr Hoyne: But they would have had to pay the money to her and they would have had to agree to pay the money to her; correct?
Mr Di Vitto: But there was loans from prior years with Bank West that were Patricia's personal loans.
Mr Hoyne: There is no evidence anywhere of any amount having ever been paid to Patrizia from this trust. Do you have any evidence of that having occurred or is it just your guess as you sit there?
Mr Di Vitto: There's no guess.[29]
91 Mr Di Vitto recounted how he came to mistakenly insert the incorrect amounts into the 26 June minute: this occurred because in the ordinary course of his role he was routinely required to distribute the profits of a trust, even though in this instance he had been instructed that Marco and Luciano wanted to wind up the trust and distribute the balance equally.
92 Mr Di Vitto stated that he had no discussions with Marco and Luciano regarding alternative ways to distribute the trust funds. He was instructed that they wanted to wind up the trust and pay the funds to themselves in equal shares. His understanding was that this decision had already been made by 26 June 2014.
93 Mr Di Vitto confirmed that the 26 June minute was simply read aloud at the meeting and that no actual discussion of the issues occurred at that time. The meeting took only a couple of minutes.
94 Mr Di Vitto confirmed that he had paid from Latina's account all the debts of the trust that he was aware of apart from the unpaid beneficiaries entitlement. He was unable to account for the additional $8,500.00 paid to Luciano except to say that he had been told by Luciano and Marco that it was referable to expenses that Luciano had paid on behalf of Latina when Latina had no funds in the bank.
95 When questioned about the joint account, Mr Di Vitto could not point to any particular potential liability of Latina which might emerge but said:[30]
I am not sure but the money was put aside for any future liabilities, whether it be debt, the boys' income tax, whether it be outstanding council rates notice that hadn't been paid for a long time, whatever arose, the boys had the money there to pay those liabilities.
96 In addition to the affidavits filed and served on behalf of the parties, and the exhibits to those affidavits, the following documents were tendered into evidence at trial:
(a) the 26 June minute;
(b) the Deed of Vestment;
(c) the tax returns submitted on behalf of Marco and Luciano for the year ended 30 June 2014;
(d) the financial statements of the trust for the year ended 30 June 2014; and
(e) the spreadsheet showing distributions to beneficiaries referred to at paragraph 25 above.
97 The financial statements and tax returns show that the payments made on 27 June 2014 to Marco and Luciano caused each of them to incur a substantial tax liability. In the case of Luciano, the payment from the trust almost tripled his taxable income, while in the case of Marco, it appears that the payment from the trust represented the entirety of his taxable income.
98 In some respects, given that there is little dispute about what happened, particularly after Marco and Luciano were required to lead evidence in support of their claim for rectification, it could be said that the credibility of witnesses was not of great significance. On the other hand, given that the fundamental issue at trial was why Marco and Luciano acted in the way they did, that is, to exclude Patrizia from the assets of the trust, the credibility of their denials that they were motivated by animosity and/or greed is a central issue in their proceeding. Of course, any doubts about the credibility of Marco and Luciano are not sufficient, of themselves, to satisfy the onus of proof upon Patrizia to establish that Marco and Luciano acted in bad faith or for an improper purpose. The question is whether any gaps in their credibility, combined with the evidence of what actually occurred, and the evidence of the surrounding circumstances, is sufficient to discharge the burden of proof imposed upon Patrizia.
99 While I cannot conclude that Marco and Luciano actively sought to mislead the Court in their evidence, they were very careful to avoid giving fulsome and meaningful answers to difficult questions. Luciano in particular gave evasive and at times selfserving evidence. Taking for example his evidence regarding the minutes of the meetings of directors of Latina in March and April 2013, Luciano was resolute in his evidence that the minutes of those meetings were prepared prior to the meetings, notwithstanding they were signed some days after the meetings concerned, they recorded discussions which took place between the participants in those meetings, and Marco's evidence that the minutes were prepared after the meetings. Luciano's evidence was clearly a clumsy attempt to explain why the 26 June minute had been prepared prior to the meeting on that day, notwithstanding that the 26 June minute referred to discussions and events which were said to have taken place at the meeting. While I would not go so far as to describe the 26 June minute as a 'ruse', as was suggested by counsel for Patrizia, it is abundantly clear that the 26 June minute was prepared by lawyers sensitive to the obligations upon a trustee in the position and circumstances of Latina, in the event that the decisions made that day were late scrutinised (as they were). However, the attempt to convey an impression that a fulsome discussion about the decision to distribute the trust funds during the course of the meeting ultimately did not stand up to scrutiny.
100 Further, while I do not criticise Marco and/or Luciano for failing to understand the Deed (noting that a substantial part of the opening address of counsel for Patrizia was spent walking me through the Deed) it seemed to me that Marco and Luciano, despite being relatively unsophisticated in financial matters, were sufficiently aware of their rights and obligations as directors of the trustee of a discretionary trust, and what they did and did not have to disclose, to tailor their evidence accordingly. They were keen to assure the Court that they had acted consistently with their duties, and had given full consideration to all of the beneficiaries and all of the issues, without identifying instances of what these issues were, and how and when this consideration occurred. In short, their evidence was somewhat evasive and definitely defensive. Further, when an opportunity came up to cast Patrizia in a poor light, it was taken, notwithstanding that no evidence was led concerning Patrizia's alleged conduct while she was in control of the trust, and she was not crossexamined at trial.[31]
101 Accordingly, I do approach the evidence of Marco and Luciano, including their denials of any animosity towards Patrizia, with some caution.
102 As for the evidence of Mr Di Vitto, while he understandably gave his evidence in a cautious manner, I have no reason to doubt the accuracy of his evidence, save perhaps his evidence regarding the reason why such a large sum of money was set aside in the joint account. His evidence showed that he had been instructed to give effect to decisions which had already been made, rather than him being actively involved in the decision-making process, and as such, could not assist the Court in that regard.
103 The issues for determination in the proceeding were summarised by counsel for Patrizia in his outline of closing submissions, as follows:
(a) did the 15 March resolution result in an immediate vesting of the assets of the trust?
(b) did the 26 June resolution constitute a valid distribution of the capital and income of the trust under the Deed?
(c) did the trustee exercise its discretion to pay the whole of the capital and income to the two directors of the trustee in good faith, on a real and genuine consideration, and for proper purposes?
(d) if Patrizia is unsuccessful on each of the above mentioned points, on its proper construction, did the 26 June resolution have the effect of distributing the sum of $488,798.05 to Marco and Luciano, or did it have the effect of distributing the amount of $1,356,102.85? If the former, can the 26 June minute be rectified?
104 It is convenient to deal with issue (b) and issue (d), both of which concern the construction and possible rectification of the 26 June resolution, together.
105 To the above issues can be added a further issue which was identified, albeit as a tangential issue, during the course of the trial, being, if Luciano and Marco are wholly or partially unsuccessful in defending Patrizia's claim, how should the unpaid distributions to them be recorded in the trust's accounts be addressed? While senior counsel for Marco and Luciano said, almost as an aside, that those unpaid distributions would need to be 'taken into account'[32], how they are to be accounted for remains unclear.
106 My conclusions in relation to the above issues are as follows:
(a) the 15 March resolution was not effective to vest the assets of the trust for the purposes of clause 4.1 of the Deed;
(b) the 26 June resolution had the effect of distributing the income of the trust in the 2014 financial year to Marco and Luciano, and, in the absence of the appointment of Marco and Luciano as beneficiaries pursuant to clause 4 of the Deed, the balance of the assets of the trust ought to have been distributed equally between Marco, Luciano and Patrizia;
(c) the remedy of rectification is available to Marco and Luciano to give effect to their intention to appoint themselves as beneficiaries of the Vesting Trust and to distribute the proceeds of the Vesting Trust to themselves;
(d) the evidence, limited that it is, satisfies me to the requisite standard of proof that the 26 June resolution was made in bad faith and for an improper purpose; and
(e) the findings above are subject to further determination as to how the unpaid distributions to Marco, Luciano, and Caterina in the trust accounts are to be accounted for and dealt with.
107 A more detailed review of the relevant evidence, the submissions of the parties, and explanation of my reasons follow. Prior to addressing each of these issues individually, I shall set out below the relevant clauses of the Deed, in addition to clause 13, which is reproduced in paragraph 4 of these reasons.
108 Clause 1 of the Deed provides for various definitions, including, relevantly, as follows:
1.6 The 'Vesting Day' means the first to occur of the following dates, namely:-
1.6.1 The date of expiration of the perpetuity period hereinafter defined;
1.6.2 Such earlier date as the Trustee may in his absolute discretion appoint.
1.7 The 'Appointor' means successively the person or persons named and described as such in the Eighth Part of the Schedule.
109 Clause 3 of the Deed concerns the application by the trustee of the income of the trust, as follows:
3.1 The Trustee shall in each Accounting Period until the Vesting Day pay apply or set aside the whole or such part (if any) as he shall think fit of the net income of the Trust Fund of that Accounting Period for such charitable purposes and/or for the benefit of all or any one or more exclusive of the other or others of the General Beneficiaries living from time to time in such proportions and in such manner as the Trustee in his absolute discretion shall think fit and without being bound to assign any reason therefor and amount set aside for any General Beneficiary as aforesaid shall not form part of the Trust Fund as defined in SUB-CLAUSE 1.5 OF THIS DEED but shall upon being set aside be held by the Trustee as a separate trust fund on trust for such General Beneficiary absolutely with power to the Trustee pending payment thereof to such General Beneficiary to invest apply or deal with such fund or any resulting income therefrom or any part thereof in the manner provided for in SUB-CLAUSE 6.4 OF THIS DEED.
3.2 Notwithstanding the provisions of SUB-CLAUSE 3.1.OF THIS DEED the Trustee may at any time or times prior to the Vesting Day in his absolute discretion so long as permitted by law accumulate the whole or any part of the income of the Trust Fund and add such income to the capital of the fund but so that the Trustee may at any time or times prior to the Vesting Day resort to such accumulations and pay or apply the whole or any part or parts thereof for such charitable purposes and/or for the benefit of all or any one or more exclusive of the other or others of the General Beneficiaries living from time to time in such proportions and in such manner as the Trustee in his absolute discretion shall think fit and without being bound to assign any reason therefor.
3.3 The Trustee shall have the powers in relation to capital of the Trust Fund conferred upon the Trustee by CLAUSE 6 OF THIS DEED.
110 Clause 4 of the Deed concerns what is to occur upon the Vesting Day, as follows:
4.1 UPON TRUST for such of the Primary Beneficiaries as shall be living on the Vesting Day and if more than one as tenants in common in equal shares absolutely PROVIDED NEVERTHELESS that if any Primary Beneficiary shall die prior to the Vesting Day leaving child or children living at Vesting Day such child or children shall stand in the place of such deceased Primary Beneficiary and take if more than one as tenants in common in equal shares the share which the said Deceased Primary Beneficiary would have taken had he or she survived to the Vesting Day;
111 Clause 4 of the Deed provides that, on the Vesting Day, the trustee shall be possessed of the trust fund for such charitable purposes and/or for such of the general beneficiaries (which includes the primary beneficiaries) as the trustee may appoint. If no general beneficiary or charitable purpose is appointed by the trustee, then the trustee holds the trust fund on trust for the primary beneficiaries (Marco, Luciano, and Patrizia) as tenants in common in equal shares. The Vesting Day is defined to mean either eighty years after the commencement of the trust, or 'such earlier date as the Trustee in his absolute discretion may appoint.'
112 Counsel for Patrizia submitted that the effect of the 15 March resolution, whereby the majority of the directors of Latina voted to sell the trust properties and wind up the trust, was to appoint 15 March 2013 as the Vesting Day, and in the absence of any decision by Latina to appoint any other general beneficiaries or charitable purposes as objects of the new trust created on the Vesting Day ('Vesting Trust'), the trustee held the assets of the Vesting Trust on trust for Marco, Luciano and Patrizia in equal shares.
113 Counsel for Patrizia identified two possible constructions of the 15 March resolution:
(a) the trust be wound up immediately; or
(b) the trust be wound up at some indefinite time that the trustee determined in the future.
114 Counsel submitted that the second alternative construction would be meaningless, as the trustee always had the capacity to wind up the trust. Such a construction ought not be preferred if a more commercially sensible construction is available.
(a) there was no difficulty for the 15 March resolution to vest the trust with immediate effect, notwithstanding that the properties were yet to be sold. The properties would simply be held by the trustee in its capacity as trustee of the Vesting Trust pending their sale;
(b) objectively determined, the intention of the 15 March resolution was to sell the properties and distribute the proceeds of sale in accordance with the terms of clause 4.1 of the Deed;
(c) the Court should not construe the 15 March resolution:
to mean that the part of the resolution dealing with the sale of the properties had meaning but that part of the resolution dealing with winding up the trust had no meaning.
(d) if the intention of the trustee at the meeting was merely to sell the properties, that is all that the 15 March resolution would need to say.
116 Senior counsel for Marco and Luciano submitted that the resolution did not affect the immediate winding up of the trust, and the consequences that follow. Rather, reading the plain language of the 15 March resolution having regard to its ordinary grammatical meaning, the 15 March resolution provided for the selling of the trust properties, and the future winding up of the trust after the payment of the trust liabilities.
117 I consider that the construction of the 15 March resolution advanced by the senior counsel for Marco and Luciano is to be preferred. Not only does the language of the 15 March resolution suggest that steps were to be taken sequentially, that is, appoint real estate agents, sell the properties, pay out liabilities and wind up the trust, the surrounding circumstances, and in particular, the other resolutions made on that day, suggest that 15 March 2013 was not the Vesting Day.
118 It is uncontroversial that the text of a directors' resolution, like any other written instrument, is to be construed by reference to what a reasonable person in the position of the parties would have understood it to mean, having regard not only to the text of the resolution, but also the surrounding circumstances known to the parties and the purpose and object of the transaction.[33] Here, the relevant surrounding circumstances were:
(a) the trust was in financial difficulties, with the bank threatening to take possession of some of the trust properties; and
(b) Patrizia was estranged from her brothers, and the parties had been unable to reach agreement as to the terms upon which Patrizia would buy out Marco's and Luciano's interests in the trust.
119 Accordingly, at the meeting on 15 March 2013, decisions needed to be made about the future of the trust. The 15 March resolution is best construed as a declaration as to what would occur in the future, rather than a decision to bring an end to the trust that day. I do not accept that such a resolution had no meaning: it foreshadowed the machinery being put in place to achieve the trustee's ultimate object, of selling the trust properties, paying out the trust debts, and then winding up the trust.
120 Perhaps the most compelling support for the contention that the 15 March resolution did not have the effect of vesting the trust on that day is to be found in the other resolutions made on that day. The first resolution provides for Patrizia, Marco and Luciano to take the steps necessary to provide all of the directors with access to documents concerning the bank facilities of the trust. The second and third resolutions recorded an agreement by Patricia to provide Marco and Luciano copies of all documents concerning the trust.
121 The fourth and fifth resolutions revoked the power of attorney held by Patrizia for the trustee, and appointed Mr Di Vitto as accountant of the trustee and the trust, and 'to undertake all financials and accounting work moving forward' (emphasis added). The sixth resolution determined that the accountants for the trustee to prepare current financial accounts and statements for the trust.
122 The seventh resolution provided for the directors of the trust to do all things necessary to enable Patrizia, Marco and Luciano to be joint authorised signatories for the trust's bank accounts, while the eighth resolution provided for the directors of Latina to do all things necessary to ensure that any future withdrawal or drawdown require the signature and/or authorisation of each of Patrizia, Marco and Luciano.
123 The ninth resolution (the 15 March resolution) concerns the sale of the trust properties and the winding up of the trust. The minutes of the meeting on 15 March 2013 record that during the course of discussions prior to the directors voting upon the resolution, Patrizia indicated that she was prepared to make an offer to Marco and Luciano to surrender their interests in the trust. Patrizia said she needed to consider the matter further before making any offer.
124 Finally, the tenth resolution (numbered 9 in the minutes of the meeting held on 15 March 2013) resolved that a rental agreement be prepared for the purpose of reaching agreement with Patrizia's partner concerning his use of the Catherine Street property.
125 The discussions which occurred and resolutions made on 15 March 2013 are inconsistent with the trust being wound up and the vesting of the assets of the trust in the Vesting Trust having occurred that day. The properties were to be sold, with reserve prices to be set at a later date. A new accountant was appointed. It was contemplated that Patrizia may make a further offer to Marco and Luciano. Steps were taken to enter into a rental agreement in relation to Catherine Street. The trust was a continuing enterprise at the time of the 15 March resolution and afterwards, and was not wound up as a consequence of it. This was also evidenced by the minutes of the meeting of the directors of Latina on 4 April 2013, where the trustee continued to make financial and operational decisions concerning the trust.
126 Counsel for Patrizia contended that the 26 June resolution was ineffective to achieve what Marco and Luciano wanted to achieve: that is, to wind up the trust and split the net proceeds of the trust fund to themselves equally. Clause 4 of the Deed provides that on the Vesting Day, the trustee must determine whether the funds of the trust were to be held on a new trust for any of the general beneficiaries, and only then could the trustee determine to pay any funds to the beneficiaries of the Vesting Trust. Rather, the 26 June resolution (as recorded in the 26 June minute) did not appoint any general beneficiary as a beneficiary of the Vesting Trust, but merely purported to 'distribute' (a term not to be found in the Deed) part of the funds of the trust to Marco and Luciano. In the absence of any appointment of beneficiaries to the Vesting Trust, the appointment by the trustee in the Vesting Deed of 26 June 2014 at the Vesting Day means that the default provisions of clause 4.1 of the Deed came into effect. Further, if it is accepted that the failure of the Trust to appoint beneficiaries of the Vesting Trust means that the resolution was invalid, no question of rectification arises, because the evidence confirms that the resolution was actually made in the terms recorded in the 26 June minute.
127 Alternatively, counsel for Patrizia submitted that the 26 June resolution was effective only to distribute the income of the trust to Marco and Luciano, and the balance of the capital of the trust (after payment of beneficiary entitlements), in the absence of the appointment of any general beneficiary pursuant to clause 4 of the Deed, the balance of the trust fund, being $867,304.80, was held by the Vesting Trust for Patrizia, Marco and Luciano as tenants in equal shares. If that proposition is accepted, Patrizia's entitlement to the trust assets is in the sum of $289,101.60, being one third of the balance of $867,304.80.
128 In relation to the first construction issue, that is, being whether the 26 June resolution was effective to distribute the assets of the trust to Marco and Luciano, counsel for Patrizia noted that the evidence showed that the 26 June minute was read out word for word. The resolution purported to effect a 'distribution' of the trust, which is presumably to be considered as a synonym of the word 'pay', which is to be found in the Deed.
129 Counsel submitted that the only potential powers to effect a 'distribution' arise from clauses 3.1, 3.2, and clause 4 of the Deed. However, clause 3.1 only empowers the trustee to distribute the income of the trust in any one year. Clause 3.2 of the Deed empowers the trustee to distribute accumulations of income carried forward from previous years. Further, both clause 3.1 and 3.2 only empower the trustee to make distributions prior to the Vesting Day, that is, prior to 26 June 2014. Accordingly, Marco and Luciano can only rely upon clause 4 of the Deed. However, as there was no appointment of beneficiaries in accordance with clause 4 of the Deed, the default provisions of clause 4 of the Deed apply. Counsel for Patrizia submitted as follows:
It may be accepted that the ultimate outcome that the Defendants were seeking to achieve was to get access to all of the Trust Fund after debts were paid. However, that does not permit the resolution of 26 June 2014 to be construed in a manner that the plain words do not allow. In essence, such a construction would require the Defendants to come before the Court and say, 'We did not know how to achieve the outcome that we sought to achieve so the Court should ignore what we actually did (which was impermissible) and assume we did what was permissible in order to achieve the outcome that we want to achieve.' That is, the Defendants seek to have the Court, in effect, change what they actually did to accord with what they now wished they had done or what they might have done had they properly understood the Trust Deed. This is not a permissible method of construction. One does not construe the trust deed so that the trustee's action fall within the terms of the deed. Rather, one objectively construes the obligations in the deed and asks if the actions of the trustee come within those obligations.[34]
130 Counsel for Patrizia noted that the claim for rectification has no impact upon this issue.
131 In relation to the second construction issue, being whether, properly construed, the effect of the 26 June resolution was to effect only a distribution of the income of the trust to Marco and Luciano, counsel for Patrizia submitted, in summary, as follows:
(a) the proper construction of the 26 June resolution was that the capital and income would be paid in payment of the outstanding entitlements, in payment of the liabilities of the trust, and in payment of the amounts specified in the 26 June minute to Marco and Luciano;
(b) it is not possible to ignore the dollar amounts specified in the 26 June minute;
(c) counsel submitted:
The objective construction of the clause is that the intention was to distribute the income from the 2014 year to the Defendants, using any other capital and income to pay the Outstanding Entitlements and Liabilities to the extent that anything was left over, this was not dealt with by the [26 June] minute (and would therefore be dealt with under clause 4.1 of the Trust Deed);
(d) the evidence of Marco, Luciano, and Mr Di Vitto was that there was a concern that the trust might have had additional, unspecified liabilities. The terms of the 26 June resolution required any outstanding debts to be paid prior to making any payment to Marco and Luciano;
(e) the balance of the capital of the trust after payment of any outstanding entitlements and liabilities (which were, according to the evidence of Marco, Luciano, and Mr Di Vitto, unknown) was not dealt with by the 26 June resolution;
(f) the construction advanced on behalf of Marco and Luciano requires the Court to ignore the specific dollar amounts in the 26 June resolution, and requires the relative proportions of the capital payable to Marco and Luciano to be read into the 26 June resolution; and
(g) counsel for Patrizia submitted as follows:
...dealing with only part of the income and balance of the trust was still consistent with the resolution. Alternatively, if it is not, then the construction that does the least damage to the words actually used is the one contended for by the plaintiff.
132 Senior counsel for Marco and Luciano submitted that the 26 June resolution was effective to appoint Marco and Luciano as beneficiaries, and that appointment exhausted the trust fund. The use of the word 'distribute' was sufficient to effect the appointment. The Vesting Deed appointing 26 June 2014 as the Vesting Day, and the 26 June resolution provided for the practical mechanics of the winding up and distribution of the trust funds. The error in the dollar figures in the 26 June minute are capable of rectification, and ought to be rectified.
133 As noted above, in my view, the effect of the 26 June resolution, in the absence of any order for rectification of the 26 June minute, was to distribute the income of the trust for the 2014 financial year to Marco and Luciano, and no more. I agree with counsel for Patrizia that one cannot ignore the figures in the 26 June minute, and the evidence is that the 26 June resolution was agreed to in the form recorded in the 26 June minute, in that the 26 June minute, which was prepared prior to the meeting of the directors of Latina, was read out and affirmed at the meeting.
134 I reject the argument advanced on behalf of Marco and Luciano to the effect that the 26 June resolution was effective to appoint Marco and Luciano as beneficiaries of the balance of the income and capital of the trust. No resolution was made to appoint Marco and Luciano as beneficiaries under clause 4 of the Deed, notwithstanding that express reference was made in the Deed of Vestment (executed on the same occasion as the 26 June minute) to the Trustee taking:
All necessary action to vest and determine the Trust on the Effective Date on the basis that the balance of any assets in the Trust will vest in such a beneficiaries and in such proportions and for one to the exclusion of the others as the Trustee may determine and appoint in pursuance of its power continued in clause 4 of the Trust Deed.
135 Clause 3 of the Deed of Vestment expressly recognises that the trustee may appoint beneficiaries on the Vesting Day pursuant to clause 4 of the Deed. No such appointment was made. It would place great strain on the language of the 26 June resolution to construe the reference in paragraph 3(c) of the 26 June resolution to payment of specific sums to Marco and Luciano as amounting to an 'appointment' for the purpose of clause 4 of the Deed.
136 The relevant dictionary definitions of 'appoint', 'appointee', 'appointment', and 'appointor' are reproduced below:[35]
appoint 1. to nominate or assign to a position, or to perform a function; set apart; designate: to appoint a new secretary. 2. to constitute, ordain, or fix by decree, order, or decision; decree: laws appointed by God. 3. to determine by authority or agreement; fix; settle: a time appointed for the meeting. 4. Law to designate (a person) to take the benefit of an estate created by a deed or will. 5. to provide with what is requisite; equip: to appoint a flat. 6. Obs. To point at by way of censure - v.i. 7. Obs. to ordain; resolve; determine. [ME appoint(en), from OF apointer, from a- A-5 + pointer POINT] -appointed_,_ adj. -appointer, n.
appointee n. 1. A person appointed. 2. A beneficiary under a legal appointment.
appointment n. 1. the act of appointing, designating, or placing in office: to fill a vacancy by appointment. 2. an office held by a person appointed. 3. the act of fixing by mutual agreement; engagement: an appointment to meet at six o'clock. 4. (usu. Pl.) equipment, as for a ship, hotel, etc. 5. Decree; ordinance.
appointor n. Law a donee of power; a person who nominates another for an office.
137 It is apparent from the natural and ordinary meaning of the word 'appoint' that some positive action is required on the part of the trustee to nominate or designate the beneficiaries to take under the Vesting Trust. The 26 June resolution does not go so far, or achieve that effect.
138 I accept that the 26 June resolution makes reference to the 'whole of the capital and the income of the Trust after payment of the Outstanding Entitlements and the Liabilities', and as such, there is an internal inconsistency between that statement and the dollar amount referred to in resolution 3(c). However, in order to achieve the outcome sought by Marco and Luciano, one would need to in effect rewrite the 26 June resolution not only to refer to the appointment of Marco and Luciano as beneficiaries of the Vesting Trust, but also to refer to the distribution of the balance of the assets of the trust to them in equal shares. Reading such terms into the 26 June resolution does far more violence to the language of the 26 June resolution than the alternative construction advanced by Patrizia, that, viewed objectively, the effect of the 26 June resolution was to distribute the income of the trust to Marco and Luciano. Such a construction at least gives the 26 June resolution some commercial meaning and effect, because arguably, its internal inconsistencies could well mean that it has no effect at all, such that the default provisions of clause 4.1 apply. However, given that it was apparent from the terms of the 26 June minute that there was to be a payment to Marco and Luciano in addition to the payment of the liabilities of the trust, the better view is that, absent rectification, the dollar figures in the 26 June minute should stand.
139 I did give some consideration as to whether, considering the terms of the Deed, the resolution was effective to even distribute the income of the trust to Marco and Luciano. After all, clause 3.1 of the Deed provides that:
The Trustee shall in each Accounting Period until the Vesting Day [emphasis added]
may pay, apply or set aside the income of the trust. Given that the Deed of Vestment nominated 26 June 2014 as the Vesting Day, it is arguable that a resolution made to pay or set aside income on that day is beyond power. However, the evidence (and the terms of the 26 June resolution) supports a finding that the Deed of Vestment was executed after the 26 June minute was signed. Further, the terms of clause 1.1 of the Deed, which provides that an Accounting Period is, for present purposes,
the period commencing on the first day of July...and ending on the Vesting Day.
140 Elsewhere in the Deed, reference is made to the trustee being empowered to do certain things 'prior to' the Vesting Day (cll 3.2, 4.1) or 'before the Vesting Day' (cl 6.1). The use of 'until' rather than 'before' or 'prior to', along with the definition of the Accounting Period in clause 1.1 of the Deed, supports a construction which allows the trustee to distribute the income of the trust at any time prior to the nomination or appointment of the Vesting Day by the trustee, notwithstanding that the distribution was made on the same day as the appointed Vesting Day.
141 Luciano gave evidence that it was always his intention (at least from March 2014) to distribute all of the assets of the trust to himself and Marco equally, and not leave anything in the trust or to distribute any money to Patrizia. Marco gave evidence in similar terms, and their evidence was supported by the evidence of Mr Di Vitto concerning the instructions provided to him in or around March 2014.
142 Marco and Luciano seek rectification of the 26 June minute to give effect to their actual intentions that day. Patrizia submitted that rectification is not available to correct any such error, and as such, the error meant that the 26 June resolution was ineffective to wind up the trust in the manner contended for by Marco and Luciano. Rather, following the distribution of the income of the trust to Marco and Luciano (if the 26 June resolution was effective to achieve that result), the balance of the trust ought to be distributed in accordance with the terms of the Deed, that is, between the three siblings equally, or, in the alternative, that only the income of the trust be distributed to Marco and Luciano.
143 I accept that it was always Marco's and Luciano's intention to wind up the trust and to distribute the net assets to themselves in equal shares. That this was their ultimate intention was not disputed by Patrizia, indeed, this is her primary complaint. I have found that the 26 June resolution was not effective to achieve that result, for two reasons: first, the 26 June resolution did not have the effect of appointing Marco and Luciano as beneficiaries of the Vesting Trust pursuant to clause 4 of the Deed, and secondly, by reason of the reference to the specific dollar amounts in paragraph 3(c) of the 26 June minute.
144 I accept that Marco and Luciano relied upon their solicitors and accountants to take the necessary steps and prepare the necessary documentation to give effect to their instructions. I also accept Mr Di Vitto's evidence as to how the error in the 26 June minute with respect to the dollar amounts referred to in paragraph 3(c) of the 26 June minute occurred: it was his intention to adhere to the trustee's instruction to distribute the net assets of the trust equally between Marco and Luciano, but he mistakenly divided the sum equivalent to the income of the trust and transposed those figures into the electronic version of the 26 June minute sent to him by the solicitors for Marco and Luciano.
145 The failure of the 26 June resolution to incorporate a resolution of the trustee expressly appointing Marco and Luciano as beneficiaries under the Vesting Trust was not the subject of any evidence. This is not surprising, because it was contended on behalf of Marco and Luciano that the terms of the 26 June resolution were effective to so appoint Marco and Luciano. It was not entirely clear from the terms of the Second Further Amended Statement of Claim that the validity of the 26 June resolution was to be challenged in this way, although I accept that the scope of paragraph 14 of that pleading was sufficiently broad to permit that challenge to be made.
146 The uncontested evidence is that the 26 June minute was prepared by the trustee's solicitors. I can infer from the text of the 26 June minute, the terms of the Deed of Vestment, the evidence concerning the intentions of and instructions given by Marco and Luciano to the trust's solicitors and accountant, and the conventional terms of a retainer between solicitors and their client that the solicitors were instructed to do all things necessary to give effect to the instructions of Marco and Luciano. In my view, it matters not whether the failure of the 26 June resolution to give full effect to those instructions was by reason of an oversight on the solicitor's part, or a misapprehension of the terms of the Deed. In either case, there has been an error on the part of the solicitors in giving effect to their clients' instructions on this occasion.
147 Senior counsel for Marco and Luciano submitted that where the written form of a document embodies a mistake, principles of equity permit the Court to correct or rectify the mistake to embody and give effect to the true intention of Marco, Luciano, and by extension, the trustee. To the extent that s 251A(1)(b) of the Corporations Act 2001 (Cth) applies, that provision provides that the minutes of the trustee are only prima facie evidence of the accuracy of the resolution made.
148 Senior counsel for Marco and Luciano submitted that the evidence clearly establishes that Marco and Luciano had intended to distribute the trust assets to themselves equally, and that none of the three people present at the signing of the 26 June minute identified the error. In particular, Marco and Luciano assumed that the 26 June resolution was effective to achieve what was intended, and gave no further thought to the matter. Senior counsel submitted that the following relevant principles apply to the current application for rectification as follows (omitting citations):
(a) the categories of written instruments which may be rectified are not limited;
(b) the need for rectification will arise when the Court can discern from the document itself and evidence of the surrounding circumstances that something has gone wrong that cannot be cured by construction;
(c) proceedings for rectification may be brought whenever a mistake in the words used in the written instrument does not conform with the common intention of the parties;
(d) an instrument may be rectified by adding or deleting or varying provisions in the document;
(e) if the grounds of rectification are made out, relief on discretionary grounds is refused only in exceptional cases; and
(f) if rectification was not available, the balance of the trust assets would need to be distributed in accordance with clause 4.1 of the Deed, save that the prior distribution to Marco and Luciano would need to be taken into account.
149 In his written outline of closing submissions, counsel for Patrizia submitted, in summary, as follows:
(a) in their defence, Marco and Luciano allege that the 26 June minute was signed by them in the belief that it embodied the resolutions made on 26 June 2014;
(b) this allegation is hopeless, because the 26 June minute merely records the resolution actually made, as, on the evidence, the 26 June minute was read out word for word;
(c) it is only permissible to rectify a document, not what occurs at a meeting; and
(d) in any event, it was not the intention of Marco and Luciano to pass a resolution which distributed $673,801.42 to Marco and $682,301.43 to Luciano, because:
(i) they did not know the precise amount of the amount available to be distributed until the following day;
(ii) the expressed intentions of Marco and Luciano were that they were to be paid equally, but the rectification now sought to be effected does not reflect that intention because the amounts sought to be inserted into the 26 June minute do not give effect to that intention;
(iii) the evidence of Marco is that he understood the amount referred to in the 26 June minute to be a partial distribution to him. Counsel for Patrizia submitted:
Hence, it cannot be said that the defendants, as directors of the Trustee, has an intention to pass a resolution that was different to that which was passed. They may, now, understanding the effect of the resolution, wish they had done something different but it is not possible to say that they had an intention to do something that was not set out in the minute;
(e) further, given Mr Di Vitto's evidence concerning how the unpaid entitlements of Marco and Luciano were dealt with in the final distribution, there would need to be a further variation to take these entitlements into account, along with the additional $8,500.00 paid to Luciano; and
(f) counsel for Patrizia submitted as follows:
It is also noted that the rectification sought relates to the act of a company that no longer exists (it having been deregistered) and is not a party to the proceeding, it is submitted that rectification in such circumstances is not possible.
150 In his reply to the submissions of senior counsel for Marco and Luciano concerning this issue, counsel for Patrizia submitted as follows:
(a) the 26 June minute accorded perfectly with what happened at the meeting, as it was read out;
(b) it was not apparent that Luciano had any other intention than to read out a document Mr Di Vitto had put in front of him;
(c) Marco understood that the sum of $244,000.00 was not the amount that was ultimately going to be paid to him, and thought that there were further amounts to be paid to him at a later time. His intention was entirely consistent with the written document;
(d) Marco and Luciano did have a 'grand plan' that all of the funds in the trust were to be paid to them, but it was not open to them to rectify the 26 June minute to reflect their ultimate intention;
(e) there was no clear intention on the part of Marco and Luciano to distribute the balance of the trust assets equally, as the 26 June resolution did not deal with the prior distributions to Marco and Luciano, or the additional $8,500.00 paid to Luciano;
(f) rectification of the 26 June minute would only change the evidence of the trustee's decision, not the decision itself; and
(g) while counsel accepted that there can be rectification of a unilateral document, he was unable to locate any authority where a minute of a director's resolution was able to be rectified.
151 A convenient review of the relevant authorities, in addition to those referred to in counsel's submissions summarised above is to be found in the decision of the ACT Supreme Court in Domazet v Jure Investments Pty Ltd.[36] What emerges from this review is as follows (omitting citations):
(a) the remedy of rectification is available in relation to unilateral documents as well as in relation to instruments between two or more parties;
(b) in cases where the parties intended to execute documents containing the words that they did, rectification is only available where there is a misunderstanding of the effect of the documents executed;
(c) reference was made to the discussion by Dr Spry in 'The Principles of Equitable Remedies'[37] regarding the circumstances where a party executing a document is mistaken not as to the words of a document, but its effect. The distinction is drawn between cases where:[38]
(i) the dominant intention remains so that if the written instrument departs from that intention it may be rectified;
(ii) the previous intention has been abandoned and the parties have agreed to the terms of the document executed in which case rectification will not be available.
(d) in cases where there has been an error by an advisor, there is a distinction between:[39]
... cases where the advice has led to the wrong transaction and those where the advice has led to wrong drafting of the document. Rectification is available in the latter but not the former situation;
and
(e) that what is required to give effect to the remedy of rectification is substantive in nature is not fatal to the remedy being available, given that it is the disconformity between the parties' intention and the executed document which gives rise to the remedy.
152 The relevant distinction drawn in paragraph 151(c) above was illustrated by reference to the decision of the New South Wales Court of Appeal in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd ('Carlenka')[40] on the one hand, and the decisions of the Court of Appeal in The Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd ('Cape Schanck')[41] and of Young J in Baird v BCE Holdings Pty Ltd ('Baird').[42] In the former case, rectification was allowed where the written instrument was a mistaken expression of the true agreement between the parties. In the latter decisions, rectification was refused because the relevant documents correctly expressed the parties' intentions at the time: rather, those intentions were infected by a mistake of fact or law, such that the parties were in effect seeking rectification of the relevant transaction, not the document embodying the transaction.
153 In my view, the remedy of rectification is available to Marco and Luciano. There is a disconformity between the clear intention of Marco and Luciano on 26 June 2014, which was to wind up the trust and distribute the balance of the assets equally to themselves, and the text and effect of the 26 June minute. Given the evidence about what transpired at the meeting on 26 June 2014, the 26 June minute was not merely evidence of the 26 June resolution: the decision made by the trustee at the meeting was to make a resolution in the terms of the 26 June minute, without any active intellectual engagement with the words in that document. This was not a situation where the directors had discussed a matter, stated orally what their decision was, but the minute later produced inaccurately documented the decision. The fact that the 26 June minute was simply read aloud, without anyone present (perhaps save for Marco) paying any real attention to the content of the 26 June minute does not alter the fact that the trustee agreed to do nothing other than adopt the 26 June minute.
154 Indeed, no issue in that regard would have arisen had the minute not been read aloud, but merely signed by Marco and Luciano. Somewhat ironically, the facts which give rise to criticism of the legality of the decision of the trustee made that day is what assists them in their claim for rectification of the 26 June minute.
155 Accordingly, by reason of the clerical error of Mr Di Vitto, and the effect of either an oversight or misapprehension on the part of the trustee's solicitors, the text of the 26 June minute did not give effect to the intention of Marco and Luciano and the instructions they gave to the trustee's solicitors and accountant. Further, this is not a case where Marco and Luciano, on the advice of their advisors or otherwise, entered into a transaction they later wanted to resile from because they were illadvised. Rather, the words and the numbers in the 26 June minute were ineffective to give effect to the transaction they intended to undertake.
156 The current case can be distinguished from the decision in Cape Schanck[43] on the basis that, in that case, the parties had intentionally entered into an agreement which contained a provision which, unbeknown to them at the time, was founded on a mistaken assumption, being that the dispute resolution forum chosen by the parties had no jurisdiction to hear and determine any dispute of that nature. In Cape Schanck,[44] there was no disconformity between the parties' common intention at the time they entered into the agreement and the words used in the agreement. The error was in the assumption which underpinned the intention. Further, the Court held that, having regard to what the parties' intention was at the time of making the agreement, there was no form of words which was capable of overcoming the mistake. In Domaset v Jure Investments Pty Ltd,[45] the Court referred to Cape Schanck[46] as 'another example of how erroneous advice may become incorporated into the common intention of the parties and hence prevent rectification being granted'. Similarly, in Baird,[47] there was no disconformity between the parties' intention and the written agreement, but rather, the relevant error infected the intention rather than the expression of the intention itself, and the relief of rectification was refused on the basis that what the parties sought was 'in effect, a rectification of the transaction, and not the documents which embody it'. In the current case, rectification involves no rewriting of history, but rather a proper recording of the parties' intentions.
157 In the current case, the errors in the 26 June minute resulted in a legal and factual operation of the words which was fundamentally inconsistent with what Marco and Luciano intended to achieve. This is consistent with the circumstances in Carlenka,[48] where the rectification was granted where words were used purposefully, but mistakenly as to their effect, so as to not give effect to the true intentions of the parties. The relevant intention is clear and precise. Further, in the current case, there is a form of words which can be deployed to give effect to the trustee's intentions. First, the question of the appointment of Marco and Luciano as the beneficiaries may be addressed by incorporating the following resolution into the 26 June minute:
2A That pursuant to clause 4 of the Trustee, the Trustee appoints Marco Trani and Luciano Trani as beneficiaries of the property of the trust as tenants in common in equal shares absolutely.
158 Further, paragraph 3(c) of the 26 June minute ought be amended to refer to the appropriate dollar figures, being subject to the following discussion, based upon the sum calculated by Mr Di Vitto on 26 June 2014, $678,183.85 to be paid to each of Marco and Luciano.
159 Counsel for Patrizia identified the following matters as being barriers to rectification of the 26 June minute:
(a) the fact that the total amount actually paid to Marco and Luciano was slightly less than the amount of the trust assets calculated by Mr Di Vitto on 26 June 2014;
(b) the fact that Luciano was paid $8,500.00 more than Marco;
(c) the failure of the trustee to deal with the unpaid entitlements of Marco and Luciano;
(d) the evidence that there may be further liabilities of the trust, which the joint account was established to hold funds to meet; and
(e) Latina has been deregistered and is not a party to this proceeding.
160 In relation to (a) above, this is a relatively trivial matter, which should not of itself deny relief to Marco and Luciano. On 26 June 2014, Mr Di Vitto applied his professional skill to the information before him to determine what amount he believed was in the bank account of the trust. That the amount in the bank account the following day fell $264.85 short of that amount ought to have been and was dealt with by the application of common sense: the amount actually paid to Marco and Luciano was reduced rateably.
161 As for the additional $8,500.00 paid to Luciano, this amount represented a debt payable by the trustee to Luciano, as the evidence showed that this was a reimbursement of expenses of the trust paid by Luciano. Strictly speaking, this amount fell within clause 3(b) of the 26 June resolution, being another liability of the trust. For that reason, the 26 June minute should be rectified to refer to equal payments being made to Marco and Luciano, subject to the discussion below regarding the treatment of the unpaid distributions to Marco and Luciano.
162 As for the question of the unpaid entitlements, this issue did cause me concern during the course of the hearing as a possible barrier to rectification, in that, at least on one view, the net assets of the trust available for distribution on the Vesting Day were diminished by those unpaid distributions by reason of the terms of clause 3.1 of the Deed. The only evidence on this question was Mr Di Vitto's evidence that they were 'subsumed' within the payments made to Luciano and Marco. As such, while I have not heard any argument on the point, it may be that, properly analysed, Marco and Luciano have impliedly waived their right to be paid those unpaid entitlements. Apart from some evidence that they had not been paid anything from the trust prior to 26 June 2014, there is no evidence that Marco and Luciano were ever aware of those prior distributions, or turned their mind to them prior to or during the course of the meeting on 26 June 2014. However, if I am wrong about that, it would be a relatively simple matter to find the words to give effect to the intentions of the trustee, being that, after the payment of the trust's liabilities and the unpaid entitlements of Gino and the children of Patrizia and Marco, Luciano and Marco were to share equally in the balance of the trust assets. Clause 3(a) of the 26 June minute refers to the trustee paying the unpaid entitlements, without referring to a specific amount, and the amounts in clause 3(c) could be altered to reflect the differential amounts to be distributed to Marco and Luciano. That there might be alternative forms of words and numbers to achieve the same result does not detract from the entitlement to rectification, provided that there are in fact words that can be used to express the intentions of the parties.
163 As for the issue as to whether there might be other unpaid liabilities of the trust, this can be answered quite briefly. I accept the submission advanced on behalf of Patrizia to the effect that, notwithstanding the protestations of Marco, Luciano, and Mr Di Vitto to the contrary, funds were set aside in the joint account in order to meet any claim by Patrizia to the assets of the trust. Given that the trust properties had been sold, the unpaid beneficiary entitlements had been paid or otherwise dealt with, and the solicitors and accountants had been paid, the suggestion that several hundred thousand dollars was set aside for any reason other than meeting a potential claim by Patrizia is somewhat ludicrous. On Patrizia's case, she is not a creditor of the trust: rather, she seeks to in effect set aside the decision of the trustee to pay the trust assets to Marco and Luciano.
164 Finally, the submission made concerning the fact that Latina has been deregistered and is not a party to this proceeding may have had more weight had the matter been pleaded. In any event, if it had been pleaded, and accepted as having merit, no doubt steps would have been taken to reinstate Latina, and add Latina as a party to the proceeding. I will seek further submissions on this question prior to making final orders, but I do not consider it a barrier to finding that the entitlement to rectification is made out.
Did Marco and Luciano cause the trustee to exercise its power to distribute the capital and the income of the trust to them in bad faith or for an improper purpose?
165 The issue of whether the trustee in making the decision (effectual or otherwise) to distribute the entire proceeds of the trust fund (net of payment of beneficiary entitlements) to Marco and Luciano, and to the exclusion of Patrizia, had breached its duties to Patrizia consumed most of the time at trial, both by way of evidence and submissions.
166 There was no dispute between the parties as to the relevant legal principles, and the evidentiary standards to be applied to the question of whether the trustee's discretion was exercised in good faith, upon a real and genuine consideration, and in accordance with the purpose for which the discretion was conferred.
167 Counsel for Patrizia accepted that the onus lies upon Patrizia to establish that the trustee exercised its discretion in bad faith and/or for an improper purpose, and that the standard of proof ought reflect the seriousness of the allegations. In his written outline of opening submissions, counsel submitted:
... the discretion was exercised by the defendants and solely for their own benefit and without a genuine and real consideration of the rights of other potential beneficiaries, including the plaintiff. Further, the discretion was exercised because of the hostility which the directors had towards the plaintiff and not for any proper purpose.
168 Senior counsel for Marco and Luciano submitted, in summary, that the trustee exercised its absolute and unfettered discretion not to distribute any part of the trust fund to Patrizia, and, on the evidence, this Court cannot find that the trustee's discretion miscarried.
169 Prior to turning to the authorities in more detail, I accept that, in cases such as the present, it is very difficult for a plaintiff in the position of Patrizia to successfully challenge the exercise of the trustee's discretion. In an essay titled 'Judicial Review of the Exercise of Discretion',[49] Finn J, writing extrajudicially, observed:
But the great difficulty which can confront an aggrieved beneficiary is that his fiduciary may not be required to give reasons for his decisions. He may be permitted to stand silently on a decision leaving it to the beneficiary to make the most he can of circumstantial evidence.
170 In commenting upon a fiduciary's right to refuse to give reasons, and the courts' reluctance to draw an adverse inference from a failure to give reasons, he noted:[50]
Despite the large number of cases in which decisions have been challenged it would seem to be more than coincidental that only in a very few cases has an aggrieved beneficiary managed to prove misconduct in the face of a wall of silence erected by his fiduciary.
171 The question in the current case is whether the circumstantial evidence is sufficient to bear out Patrizia's contention that the trustee's decision to distribute the assets of the trust to Marco and Luciano alone was motivated by the directors' animosity towards Patrizia and their desire to enrich themselves at her expense, and further, that there was a failure on the part of the trustee to give proper consideration to the interests and entitlements of the beneficiaries of the trust, especially Patrizia.
172 Turning now to the relevant authorities, in Attorney-General (Cth) v Breckler,[51] the High Court referred to with apparent approval[52] the summary of the effect of decisions defining the scope for challenge to the exercise of discretion by trustees set out in Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd;[53]as follows (omitting citations):
Where a trustee exercises a discretion, it may be impugned on a number of different bases such as that it was exercised in bad faith, arbitrarily, capriciously, wantonly, irresponsibly, mischievously or irrelevantly to any sensible expectation of the settlor, or without giving a real or genuine consideration to the exercise of the discretion. The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable or unwise. Where a discretion is expressed to be absolute it may be that bad faith needs to be shown. The soundness of the exercise of a discretion can be examined where reasons have been given, but the test is not fairness or reasonableness.
173 In addition to the above, the following principles have been identified as relevant to evaluating any challenge to the exercise of a trustee's discretion:
(a) mere carelessness or honest blundering will not negative good faith;[54]
(b) a trustee is not required to observe the rules of natural justice;[55]
(c) a trustee must take an informed view of whether or not to exercise their discretion;[56]
(d) a trustee must not act irresponsibly, capriciously, or wantonly, or for any ulterior purpose;[57]
(e) while it is not the role of the Court to consider whether an exercise of discretion is fair or reasonable, a grotesquely unreasonable result may be evidence of a breach of duty;[58]
(f) the discretion must be exercised with an absence of indirect motive, with honesty of intention, and a fair consideration of the issues;[59]
(g) what amounts to bad faith includes, but goes beyond fraud, to include a refusal to make an informed decision, making a decision for an ulterior motive or purpose, and a failure to take relevant considerations into account;[60]
(h) the Court will presume that a trustee has exercised their discretion with propriety, and the onus of proving any bad faith on the part of a trustee rests with the party seeking to challenge the exercise of discretion;[61] and
(i) notwithstanding the above, the Courts may be prepared to review the exercise of a trustee's discretion not only having regard to the reasons of the trustee (if available), but also the objective consequences of the decision upon the beneficiaries of the trust.[62]
174 The leading authority in this jurisdiction applicable to the circumstances of the current proceeding is the decision of McGarvie J in Karger v Paul.[63] In Karger v Paul,[64] the plaintiff was the remainder beneficiary under a will. The executors of the estate under the will were the deceased's husband and the deceased's former solicitor. The terms of the will provided for the estate to pass to the deceased's husband for life, and upon his death, to the plaintiff. However, the terms of the will also provided that the trustees had an absolute, unfettered discretion to pay all or any part of the estate to the deceased husband absolutely, if he requested them to do so. He made such a request, and the whole of the assets of the estate were passed to him. After his death, those assets passed to his fiancé, thereby extinguishing the interest of the remainder beneficiary.
175 McGarvie J held that the plaintiff had failed to establish that the trustees had failed to give real and genuine consideration to their exercise of discretion, notwithstanding the limited enquiries made on the part of the solicitor trustee, and his reliance upon the information provided by the other trustee, the deceased's husband, and the beneficiary of the exercise of the discretion.
176 The ratio of the decision is clear, for current purposes, from an extract of the headnote, which is reproduced below:
(1) The exercise of a discretion in such broad and unfettered terms will not be examined or reviewed by the court if the discretion is exercised by the trustees in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion is conferred and not for some ulterior purpose; provided, however, that the validity of the trustees' reasons for the exercise of their discretion will be examined and reviewed if they choose to state their reasons for the exercise of the discretion. In re Londonderry's Settlement [1964] EWCA Civ 6; [1965] Ch 918; [1964] 3 All ER 855, referred to.
(2) It is open to the court to examine the evidence to decide whether there has been a failure by the trustees to exercise the discretion in good faith, upon genuine consideration and in accordance with the appropriate purpose; and in conducting this examination it may look at the inquiries made by the trustees, the information they had and their reasons for, and the manner of, their exercise of the discretion. However, it is not open to the court to look at these matters for the independent purpose of impugning the exercise of the discretion on grounds that their inquiries were inadequate, their appreciation of the facts wrong or their decision unwise. The court examines whether the discretion was exercised but does not examine how it was exercised.
(3) The requirement that the exercise of the discretion be given real and genuine consideration necessitates the exercise of an active discretion by the trustees.
(4) The exception to the general principle, under which the exercise of the discretion by the trustees may be examined by the court, is based on the notion that if the trustees of their own volition disclose their reasons, they are treated as waiving their immunity and inviting examination and review of the reasons. The exception is not rendered applicable because the trustees' reasons have, perforce, to be canvassed in evidence in an action where lack of good faith is alleged against them.
(5) There is no implied obligation that those who may be adversely affected by the exercise of the discretionary power should be given an opportunity of making representations to the trustees before they exercise their discretion, nor that the exercise of the discretion be based on inquiries by the trustees which are demonstrably adequate. The rules of natural justice do not affect the trustees in the exercise of their discretion.
177 In Esso Australia Ltd v Australian Petroleum Agents' & Distributors' Association,[65] which concerned the exercise of a discretion conferred upon the trustee of an industry fidelity fund, Hayne J noted the statement of McGarvie J in Karger v Paul,[66] to the effect that the exercise of the discretion of a trustee is examinable only as to good faith, real and genuine consideration and absence of ulterior purpose, and stated pithily:[67]
178 The decision in Karger v Paul[68] was referred to with approval by the Court of Appeal in Curwen & Ors v Vanbreck Pty Ltd,[69] where the Court also stated that no inference of any improper purpose could be drawn of a trustee's nondisclosure of her reasons for exercising her discretion in a particular way,[70] even if the trustee was put on notice that her discretion was to be impugned, and confirmed that the onus of establishing an improper purpose rests with the person alleging it.[71]
179 In Mandie & Anor v Memart Nominees Pty Ltd,[72] Macaulay J considered that a trustee's immunity from giving reasons for the exercise of a discretion in the absence of any allegation of bad faith or improper purpose extended to protecting the disclosure of evidence of the trustee's deliberations and the material upon which the trustee's reasons were or might have been based - that is, at the least, material that was so integrated with the trustee's reasoning process that its disclosure may reveal that reasoning process.[73] However, his Honour observed[74] that the position may have been different had there been a proceeding on foot asserting a want of good faith or some other proper legal basis for challenging the discretion of a trustee.
180 In Cohen & Ors v Amberley Corporation Australia Pty Ltd,[75] Derham AsJ refused to order that a trustee make discovery of documents evidencing resolutions made by a trustee and documents relevant to the issues in the proceeding. The statement of claim made allegations that the trustee, in removing the plaintiffs from a particular class of beneficiary of a trust, had acted, among other things, in bad faith and for an improper purpose. However, he did so on the basis that the pleading of this allegation was defective, in that it was unsupported by the particulars alleged, and, relying on the decision in Mandie & Anor v Memart Nominees Pty Ltd,[76] observed as follows:[77]
Although it is not presently necessary to decide the issue, I consider that the authorities support the view that the Trustee's exercise of the power under clause 20 of the Trust Deed is examinable, but only to ascertain whether the discretion has been lawfully exercised but not however, how it was exercised. Given that the Trustee's exercise of discretion is examinable for that purpose, if paragraph 14 properly raised the issues of a lack of good faith or an improper purpose, it would be open to the plaintiffs to claim that documents in the possession of the defendant that showed the exercise of the discretion should be discovered and inspected.
181 Of course, the decisions in Mandie & Anor v Memart Nominees Pty Ltd[78] and Cohen & Ors v Amberley Corporation Australia Pty Ltd[79] largely concerned the question of the right to obtain discovery of documents from a potential trustee, an issue which has not arisen in this proceeding.[80] However, they are relevant to the current case in two respects: first, they indicate how entrenched the principles stated and the reasoning in Karger v Paul[81] are in this jurisdiction, and secondly, notwithstanding certain aspects of the reasoning in Karger v Paul,[82] they leave open the prospect of some forensic evaluation of the decisionmaking and/or reasoning process of a trustee when exercising its discretion, even when a trustee elects not to provide reasons.
182 Each of the parties to this proceeding relied upon the decision in Karger v Paul[83] and subsequent authorities to support their respective positions at trial. Patrizia relied upon the decision as establishing that even an absolute and uncontrolled discretion of a trustee may be subject to review in certain circumstances. Marco and Luciano relied upon the decision to emphasise that the scope of any such review is very limited, both in terms of the grounds upon which a challenge may be based, and the evidence which can be relied upon to establish whether those grounds can be made out.
183 Patrizia relies upon the undisputed facts and the evidence of Marco and Luciano under crossexamination to support her contention that Marco and Luciano acted in bad faith and for an improper purpose in excluding her from the distribution of trust assets. Essentially, she asserts that they were motivated by animosity and greed, which is evidenced by their decision to remove her as a director of the trustee, to take steps to evict her partner from Catherine Street where he had been operating his business with the consent of the trustee for many years, and their decision to exclude her from the final distribution of the trust assets. She asserts that the statement in the 26 June minute that the trustee had considered the beneficiaries of the trust was a fiction. She also relied upon the evidence of Mr Di Vitto to the effect that he was told that the trust was to be wound up and the assets distributed to Marco and Luciano, and that his instructions were to give effect to this decision, to support her contention that there had been no proper consideration given to the entitlements of any of the other beneficiaries of the trust, either at the meeting of the directors of Latina on 26 June 2014, or any other time. She also relied upon Mr Di Vitto's evidence that he had not given Marco and Luciano advice on how to distribute the assets of the trust in the most tax effective way, despite it being his usual practice to do so, as evidence in support of Marco and Luciano's desire to wind up the trust and distribute the assets to themselves as quickly as possible, regardless of the tax consequences. While the expression was not expressly used by counsel for Patrizia at the hearing, I understood this submission to mean that their haste was motivated by, or reflected some consciousness of guilt on the part of Marco and Luciano.
184 Patrizia relied upon an affidavit sworn by Luciano on 17 April 2013[84] in support of the trustee's application to remove the caveats over the trust properties, where Luciano deposed that since 2003, Patrizia on the one hand, and he and Marco on the other hand, had been in dispute over the operation of the trust. He deposed that these disputes escalated in 2010, and that 'Patrizia's relationship with Marco and me has irretrievably broken down.' In his affidavit, Luciano blamed the trust's financial difficulties upon Patrizia.
185 Counsel for Patrizia submitted that, given the above and Luciano's evidence that he and Patrizia were not on speaking terms since April 2013, Luciano's evidence under crossexamination that he had a good relationship with her was implausible. Also implausible was his evidence that it was the usual practice for minutes of meetings of Latina's directors to be drafted before the meeting, given that the minutes of the 15 March 2013 meeting and 4 April 2013 meeting recorded discussions which took place at those meetings.
186 During further cross-examination Luciano admitted that Latina had undertaken a forensic examination of the trust's transactions as foreshadowed by his affidavit sworn on 17 April 2013, but did nothing to pursue any issues and no claims were ever made in relation to the alleged improper conduct of Patrizia.
187 Counsel for Patrizia in his closing submissions, summarised the evidence in support of Patrizia's claim as follows:
(a) the 26 June minute was a 'ruse', designed to make it appear that there had been a genuine consideration of the issues at that meeting, when the evidence indicates that no such consideration occurred;
(b) Marco and Luciano did not consider any potential entitlement of the children of Marco and Patrizia beyond the payment of the unpaid entitlements;
(c) no consideration at all was given to a number of potential beneficiaries, such as Luciano's wife, any future grandchildren, or any charitable purpose; and
(d) in his written outline of closing submissions, counsel for Patrizia submitted as follows:
Despite the defendants' claims to the contrary, there was no real and genuine consideration of the exercising (sic) the discretion in favour of the plaintiff:
188 Counsel for Patrizia made the following further observations in his closing address concerning the evidence given by Luciano and Marco under crossexamination:
(a) it is clear that, at the meeting on 26 June 2014, notwithstanding the terms of the 26 June minute, Marco and Luciano gave no consideration to any beneficiary apart from themselves. The 26 June minute was simply read aloud, and the meeting was concluded in a couple of minutes;
(b) counsel for Patrizia submitted in his opening address that:[85]
Now, I'll have a lot to say about the effectiveness of simply reading a minute in that format during the course of the trial, but we say it's manifestly ineffective and inappropriate and doesn't give real and genuine consideration and demonstrate there's a failure to exercise a discretion for a proper purpose in all those matter, we say.
This is as clear a case as these come. These are ordinarily difficult cases. We say that the material that's come forward recently is demonstrative of a clear case in this circumstance. The proposition that one can turn up, read the minute, particularly in the format that this minute was done which says that you know 'We consider the trust deed' as though they (indistinct) actually considers the trust deed, 'And we consider the beneficiaries' where they acknowledge they've already turned up with a closed mind, we say doesn't work.
(c) Marco's and Luciano's evidence that they loved Patrizia, had always been good friends with Patrizia, and that their relationship had never broken down was 'deliberately false and designed to give the impression that they could not have been motivated by animosity towards [Patrizia]', and ought be rejected;
(d) indeed, Marco blamed Patrizia for having him removed as a director and shareholder of Latina in 2003, and claimed their father was maltreated while in Patrizia's care;
(e) Marco and Luciano paid no attention to whether there was a more tax effective way of structuring the vesting of the trust: what occurred was as tax ineffective as possible, which suggests that the primary objective of Marco and Luciano was to wind up the trust as quickly as possible. Their decision to set aside approximately one-third of the assets of the trust into a joint account in their names is consistent with them anticipating a claim being made on the trust by Patrizia;
(f) Marco and Luciano gave evidence, after substantial equivocation, that one of the issues they took into account in deciding not to pay anything to Patrizia was her alleged mismanagement of the trust and the use of trust assets to secure loans advanced to her. No corroborative evidence to support these allegations was advanced at trial, and no claims were made by the trustee against Patrizia prior to the trust being wound up in June 2014;
(g) counsel for Patrizia submitted as follows:
... it stretches the realms of credibility beyond breaking point to suggest that these directors calmly, and with an open mind, discussed the potential to pay the proceeds of the Trust Fund to themselves or to the Plaintiff and then came to the conclusion that they should pay it to themselves at any time, let alone an 'informal' meeting. It is submitted that the far more likely version of events is that they were advised that they had a discretion as to how the moneys were to (sic) paid, that they did not have to pay the plaintiff anything and determined that if there was nothing to require them to pay money to someone from whom they were estranged, they would not do it. The contrary is difficult to imagine and the defendants' plainly false evidence about their feelings towards the plaintiff on this issue is most telling.
(h) the evidence of Marco and Luciano regarding the meetings at which they said they considered the beneficiaries was very vague, and contradictory. Luciano gave evidence that he and Marco decided to exclude Patrizia from the trust because they had the right to do so;
(i) there was no evidence that matters such as the trust being in financial difficulty, Patrizia's failure to agree to the winding up of the trust, or concerns about her management of the trust were actuating factors in the trustee's decision. Rather, it is inherently likely that the hostility of Marco and Luciano towards Patrizia and their personal desire to enrich themselves were the actuating factors in their decision to exclude Patrizia from the assets of the trust;
(j) Marco and Luciano gave evidence that they made no enquiries concerning the financial position of Patrizia and her family; and
(k) Counsel for Patrizia submitted as follows:
Having been given multiple opportunities to give details of the discussions, the defendants were unable or unwilling to do so. It is submitted that the only logical finding is that no meaningful discussions about potentially giving money to the plaintiff ever took place.
189 Senior counsel for Marco and Luciano relied upon the authorities canvassed at paragraphs 174 to 180 above to emphasise the limited scope for judicial review of the exercise of a trustee. The discretion cannot be impugned on the basis that the trustee's decision was unfair, unreasonable or unwise. The Court can only examine the exercise of discretion where there is a prima facie case of bad faith or other breach of duty on the part of the trustee. A trustee is not required to observe the requirements of natural justice.
190 Senior counsel for Marco and Luciano relied upon the decision of Hayne J in Esso Australia Ltd v Australian Petroleum Agents' & Distributors' Association,[86] where his Honour stated that in the absence of a statement of reasons by the trustee, it will not ordinarily be possible to conclude that the trustee has taken into account irrelevant matters or has failed to consider relevant matters merely from the conclusion reached.[87] A disappointed beneficiary is not ordinarily able to prove actual bad faith or impropriety merely by pointing to the effect of the exercise of the discretion.
191 Senior counsel for Marco and Luciano submitted that, because of the gravity of an allegation of bad faith, this Court must be 'actually persuaded' of the existence of bad faith. He submitted that, in view of the evidence and the applicable authorities, Patrizia cannot establish any bad faith on the part of Marco and Luciano. The trustee was not required to provide reasons for its decision to exclude Patrizia from the final distribution of the trust's assets, and no adverse inference can be drawn from its failure to do so. Rather, the evidence is that Marco and Luciano gave due consideration as to how they should exercise their discretion when they decided to distribute the trust fund to themselves equally, to the exclusion of Patrizia. The proposition that, because the trustee did not exercise its discretion in Patrizia's favour, it must have exercised its discretion in bad faith, is inconsistent with the authorities, and must be rejected.
192 In response to the specific submissions advanced on behalf of Patrizia, senior counsel for Marco and Luciano submitted, in summary, as follows:
(a) while there was an estrangement between the parties after their mother's death in March 2011, in part resulting from disagreements as to what to do about the financial problems of the trust, the evidence does not establish any animosity on the part of Marco and Luciano towards Patrizia, or that the estrangement was the sole or substantial motivation behind their decision. Marco and Luciano directly rejected this contention on a number of occasions during the course of giving their evidence, and Marco gave evidence that all due consideration was given to giving money to Patrizia;
(b) the trustee's decision in March 2013 to sell the properties and wind up the trust was unremarkable given the financial difficulties of the trust, and indeed Patrizia's opposition to that course was remarkable in the circumstances. That opposition, her opposition to requiring her partner to pay rent for Catherine Street, her action in lodging caveats over the trust properties and her partner's action which forced the trustee to take legal action to evict him from Catherine Street, suggested that Patrizia preferred her own interests over the interests of the trust, and justified her removal as a director of Latina;
(c) Patrizia's allegation that she made financial contributions to the trust and/or the properties of the trust was not supported by any evidence. While the evidence indicates that she substantially managed the affairs of the trust between 2008 and 2011, and signed various guarantees, she did so voluntarily, and Luciano also signed guarantees. Further, there was some evidence that Patrizia received direct financial benefits by using trust assets as security for personal borrowings and taking private drawings, and received an indirect benefit by her partner having rent free occupation of Catherine Street. On the other hand, no payments were ever made to Marco and Luciano prior to 26 June 2014;
(d) while the evidence showed that both Marco and Luciano had a limited understanding as to what a trust was and of the duties of a trustee, they tried to do the best they could to deal with the issues concerning the trust. Senior counsel for Marco and Luciano submitted as follows:
the evidence of both Defendants as to what steps they took to inform themselves of their duties and obligations under the trust and how they should exercise the trustee's discretion should be accepted by the Court as inherently plausible and credible;
(e) Marco and Luciano's evidence was that they obtained legal and accounting advice to inform themselves of the trustee's obligations before determining what to do with the trust fund. Their evidence that they had had some discussions and reached a decision by about March 2014 is supported by the evidence of Mr Di Vitto;
(f) the evidence establishes that genuine consideration was given to the beneficiaries of the trust prior to the meeting on 26 June 2014. The 26 June resolution was the culmination of that process of consideration. In any event, there is no requirement as to the process a trustee must undertake to establish that it had given genuine consideration to the beneficiaries of the trust prior to making its decision. Marco and Luciano gave evidence that they understood who the beneficiaries of the trust were, they did give some consideration to whether to pay Patrizia and the other beneficiaries anything over and above what they were legally obliged to do, and decided not to do so;
(g) while Marco and Luciano did not seek financial information from Patrizia or other potential beneficiaries prior to the trustee making its determination, it was not incumbent upon them to do so. They did seek legal advice about the terms of the trust and their obligations to the beneficiaries, and accounting advice as to the state of the trust and the amount of the net assets of the trust;
(h) while the proposition that there were more tax effective mechanisms to wind up the trust was probably correct, that issue is irrelevant to the question of whether the discretion was exercised in bad faith or for an improper purpose. Luciano's desire to bring the trust to an end quickly is understandable given the financial problems of the trust and his and Marco's disagreements with Patrizia;
(i) to the extent that the decision in Scott v National Trust for Places of Historic Interest or Natural Beauty[88] stands for the proposition that a beneficiary has a legitimate expectation which compels a trustee to afford natural justice to that beneficiary, that decision ought not be followed, as it directly conflicts with Karger v Paul;[89]and
(j) senior counsel for Marco and Luciano submitted as follows:
The defendants were extensively crossexamined to the effect that they had simply decided to pay themselves and did not consider anybody else. ...
The evidence that emerged from that crossexamination was consistent and to the effect that consideration was given to other beneficiaries, including the Plaintiff, but the decision ultimately was that the distribution would go to the two of them.
There is no valid basis for rejecting this evidence by the Defendants that they considered the Plaintiff but nevertheless decided to distribute to themselves.
It is clear that the Defendants had limited understanding of trusts and corporations but they did the best they could in trying to get some understanding of what were their trust obligations and what factors they need to consider before making a concluded decision to distribute as they did.
It is submitted that the Defendants made reasonable enquiries to inform themselves of the basis upon which the discretion could be exercised and those enquiries were sufficient for the purposes of this trust and the exercise of the discretion by the trustee. ...
A trustee of a discretionary trust with an absolute and unfettered discretion is not required to do anything more than consider who the beneficiaries are and determine whether any distribution nor payments from the trust should be made to them.
193 The evidence before me concerning the history of the parties' dealings concerning the trust, the evidence concerning the parties' state of mind up to and including March 2013, the evidence concerning what enquiries were made and what consideration was given to the beneficiaries of the trust prior to and on 26 June 2014, and the caution with which I ought approach the evidence of Marco and Luciano, all point towards a conclusion that Marco and Luciano had acted in bad faith in excluding Patrizia from the assets of the trust, in that their decision was primarily motivated by their animus towards her, and her entitlements under the trust were not given proper consideration. I accept the submissions advanced on behalf of Patrizia that their decision to exercise their discretion in that way was because of their animosity towards her, and because they had no doubt been advised that they could exercise their discretion to advantage themselves. While I cannot be positively satisfied that Marco and Luciano were motivated by greed, I note that the payment to each of them of over $600,000.00 would have, notwithstanding the taxation consequences of those payments, led to a substantial improvement in their respective financial positions, at least having regard to Luciano's reasonably modest income, and the fact that apparently Marco earns no income at all.
194 Further, I also accept that the evidence establishes that Marco and Luciano failed to give real and genuine consideration to the beneficiaries of the trust, and in particular, to Patrizia, given her status as a Primary Beneficiary of the trust.
195 The evidence as to what occurred in the lead up to the meeting of 15 March 2013 is instructive as to the understanding of the state of mind of the parties. While of course the parties' subjective understanding of their entitlements and obligations in relation to the trust have no role to play in interpreting the terms of the trust, and do not change the character of the trust as a discretionary trust, the state of mind of Marco and Luciano in particular is relevant to what motivated them to deal with the assets of the trust in a particular way, that is, to exclude Patrizia completely.
196 In Hindle v John Cotton Ltd,[90] the Court held:
Where the question is one of abuse of powers, the state of mind of those who acted, and the motive on which they acted, are all important, and you may go into the question of what their intention was, collecting from the surrounding circumstances all the materials which genuinely throw light upon that question of the state of mind of the directors so as to show whether they were honestly acting in the discharge of their powers in the interests of the company or were acting from some bye-motive, possibly of personal advantage, or for any other reason.
197 Accordingly, evidence of the surrounding circumstances, and the subjective understanding of the parties regarding their rights and the rights and entitlements of others are relevant to assessing whether a trustee is acting in bad faith, and/or for an improper purpose.[91]
(a) Patrizia on the one hand and Marco and Luciano on the other hand were estranged, for what seemed to be largely personal reasons, but they were also in dispute concerning the issue of whether the trust should be wound up in response to the financial difficulties facing the trust;
(b) Patrizia had made an offer to buy out Marco's and Luciano's interests in the trust. Strictly speaking, given that the trust was a discretionary trust, neither Marco or Luciano had any 'interests' to buy out, but it is tolerably clear from the letter of offer, and the counter offer made in response,[92] that all parties considered each of Marco, Luciano, and Patrizia to be entitled to the assets of the trust in equal shares. That is understandable, given that the assets of the trust were largely assets which, would have been, if not gifted to the trust, assets of Gino and Caterina, which would have thus formed part of the assets of their estates upon their death;
(c) that the above was the common understanding of the parties was supported by the evidence of Luciano[93] to the effect that Patrizia's offer was rejected, not because the offer was based upon a legal fiction, but because he and Marco were concerned that she would be unable to finance the proposed buyout; and
(d) at the meeting on 15 March 2013, it was contemplated that Patrizia might make a further offer to Marco and Luciano to buy out their interests in the trust. There is no evidence of the interests of any other of the beneficiaries of the trust being in the contemplation of any party at that time (or, for that matter, at any time).
199 Accordingly, the decision of Marco and Luciano in or about March 2014 to exclude Patrizia from the assets of the trust was not made in a vacuum. Rather, it amounted to a change of position on the part of Marco and Luciano. Prior to that time, there appeared to be no dispute that Patrizia had an interest in the trust, notwithstanding that this understanding did not reflect the true legal position, the dispute concerned how much she was prepared to pay Mario and Luciano to surrender their interests. The question is, what motivated Marco and Luciano to change their position? Was it, as contended for by Patrizia, their animosity and greed?
200 Before answering this question, I pause to make some observations concerning the evidence of Marco and Luciano under crossexamination. First, it is apparent from the material on the court file prior to 24 November 2017 that neither Luciano or Marco intended to give any substantive evidence concerning their decision to exclude Patrizia from the assets of the trust. Marco had not sworn an affidavit at all, and Luciano's affidavit of 5 May 2016 concerned largely formal and uncontentious matters. This position is consistent with the authorities regarding the protection from disclosure of the reasoning process of trustees, and the authorities indicate that I can draw no adverse evidence regarding their failure to give reasons for their decision, either at trial or beforehand.
201 However, the door shutting off information concerning their decision making process was at least pushed ajar, if not fully opened, by their need to bring a rectification claim with respect to the 26 June minute. While I did not permit Marco and Luciano to be crossexamined directly concerning their reasons for excluding Patrizia from the assets of the trust, the crossexamination necessarily canvassed a number of aspects of their decision-making process. Further, as noted in paragraph 98 of these reasons, some of the evidence given by Marco and Luciano casts significant doubt upon their credibility as witnesses. While that credibility gap does not, of itself, establish that Marco and Luciano were motivated by bad faith and/or an improper purpose, it does cast a great deal of doubt upon their protestations of affection for Patrizia, and their insistence that they gave proper consideration to all of the beneficiaries during the process of winding up the trust.
202 Further to the above, I should say that, notwithstanding my ruling early in the trial that Marco and Luciano could not be crossexamined on their reasons for making the decision they did, I am not precluded from relying upon the evidence they did give, taking into account concerns I have regarding the quality and veracity of that evidence, in determining whether their exercise of discretion was lawful. First, the crossexamination largely focused upon what consideration they gave to the position of the beneficiaries of the trust and other matters. The decision in Karger v Paul[94] does not preclude investigation of such matters. As stated by McGarvie J:[95]
In my view, in this case it is open to the Court to examine the evidence to decide whether there has been a failure by the trustees to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. As part of the process of, and solely for the purpose of, ascertaining whether there has been any such failure, it is relevant to look at evidence of the inquiries which were made by the trustees, the info
They had and the reasons for, and manner of, their exercising their discretion. However, it is not open to the Court to look at those things for the independent purpose of impugning the exercise of discretion on the grounds that their inquiries, information or reasons or the manner of exercise of the discretion, fell short of what was appropriate and sufficient. ... the issues which are examinable by the Court are limited to whether there has been a failure to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred.
In my view, a close reading of Karger v Paul makes it clear that the case is not authority for the proposition that a trustee cannot be crossexamined in relation to the exercise of the discretion. It merely determines the purpose to which such evidence can be put.
204 I agree. In my view, all of the evidence can be examined for the purpose of determining whether the trustee exercised its discretion lawfully. What it cannot be used for is to determine whether a lawfully exercised discretion was exercised properly or reasonably. However, evidence of a failure to make proper enquiries may well support a finding that the trustee had not given real and genuine consideration to the beneficiaries of the trust. Further, the evidence of what consideration was in fact given to the beneficiaries of the trust is directly relevant to the question of whether that consideration was 'real and genuine'. Indeed, that was the exercise undertaken by McGarvie J in Karger v Paul.[98]
206 Finally, there is an additional element in the current case that gives me comfort that, while no adverse inference can be drawn from the failure of Marco and Luciano to provide reasons for the trustee's decision, there is no limitation upon the use to which I can draw inferences from the evidence given by Marco and Luciano regarding their decision making process. In the current case, Marco and Luciano are not only defending their decision to exclude Patrizia from the distribution of the assets of the trust, they have also brought a positive claim for rectification of the 26 June minute. In order to establish their right to relief, it was incumbent upon them to disclose their intentions and when those intentions were formed. However, the claim for rectification was brought voluntarily, and had it not been brought, Marco and Luciano may well have been able to remain behind their shield of silence. It would have certainly been more difficult for Patrizia to expose what actually occurred at the meeting on 26 June 2014, which provided considerable support for her contention that the trustee failed to provide real and genuine consideration to her entitlements as a beneficiary. It seems to me that it would be artificial, and indeed unfair, if Marco and Luciano could rely upon the evidence advanced by them in support of their claim for rectification, but contend that I could not deploy that evidence, including my observations regarding the credibility of their evidence, in evaluating the claims advanced by Patrizia. I do not consider that a submission in those terms was advanced by senior counsel for Marco and Luciano, but for the avoidance of doubt, if it was, I reject that proposition.
207 Having regard to the evidence, I make the following observations and findings:
(a) as noted in paragraph 197 above, the evidence needs to be viewed in the context of the surrounding circumstances and the subjective 'understandings' and intentions of the parties. At least as at March 2013, while Patrizia was in disagreement concerning the future of the trust, the common understanding of the parties was that the parties were entitled to the assets of the trust in equal shares. It is against this background that the conduct and decision making process of Marco and Luciano is to be assessed;
(b) Marco and Luciano were advised by lawyers at least since the start of 2013. It is apparent from their evidence that they sought and obtained advice not only as to what they should do, but what they could do under the terms of the Deed. No advice was sought from Mr Di Vitto regarding how they should deal with the assets of the trust: he was simply instructed to do what was required to give effect to their decision;
(c) the evidence of Marco and Luciano, notwithstanding that in some respects it was somewhat incoherent, makes it clear that Marco and Luciano understood that they had a discretion as to how to deal with the assets of the trust, and believed that discretion was largely unfettered;
(d) during and after the 15 March meeting, Marco and Luciano, and Luciano in particular, moved to take control of the trust. An old friend of Luciano was appointed as the accountant for the trust, and moves were afoot to charge Patrizia's partner commercial rent for Catherine Street. While the trustee was entitled to do these things, they were clearly hostile acts directed at Patrizia;
(e) similarly, while this decision was probably at least partly motivated by Patrizia's somewhat illadvised conduct in lodging caveats over the trust properties, Marco's and Luciano's decision to remove Patrizia as a director of the trustee meant that she was cut out of the decisionmaking process of the trust, and had limited, if any, access to information about the affairs of the trust, a trust she had voluntarily managed for at least ten years prior to that time;
(f) given the above, the suggestion that Marco and Luciano held no animosity towards Patrizia, and were not motivated by any animosity towards her, is, as contended for on behalf of Patrizia, highly implausible;
(g) while it is not determinative of the matter, the lack of inquiry of any kind concerning the financial circumstances of Patrizia or indeed of any of the other general beneficiaries supports the contention that no genuine consideration was given to distributing the assets of the trust to anyone other than themselves;
(h) the evidence of Marco and Luciano regarding what consideration they give to the beneficiaries of the trust was evasive, vague in the extreme, and conclusionary. Their continued assertions that they gave consideration to 'everyone', and 'all of the options' did not descend, despite repeated questioning, to any detail whatsoever as to when the beneficiaries, or any of them were considered, and what issues were canvassed or taken into account in that consideration. While I accept that the law does not proscribe any particular process which must be undertaken by a trustee prior to making decisions of this nature, and decisions concerning trusts such as this are often made in an informal manner, this was a significant decision. The trustee had determined to wind up the family trust which had operated for nearly twenty years, comprising a substantial portfolio of property largely gifted by their parents, from which Marco and Luciano had decided to exclude their sister and the next generation of the family;
(i) while Marco and Luciano contended that the need for the trust to be wound up quickly was owing to the parlous financial position of Latina, it would have been possible to sell some but not all, trust properties to clear the bank debt, and sell the remaining properties in the following financial year to achieve a more tax effective outcome for the ultimate beneficiaries of the trust. The haste with which Marco and Luciano wound up the trust, notwithstanding that it was not necessary to do so, and notwithstanding the adverse tax consequences for themselves as a result of this transaction, does indicate some 'consciousness of guilt'; and
(j) the evidence of what occurred during the meeting of 26 June 2014, compared with the text of the 26 June minute, and the misleading evidence of Luciano in his affidavit of 5 May 2016 concerning what occurred at the meeting, suggests that the 26 June minute was a contrivance aimed at conveying a misleading impression to the reader. The 26 June minute was drafted by solicitors prior to the meeting, and was consistent with what the authorities say should occur, but was not consistent with what did occur. The absence of any substantive evidence regarding the question of whether Marco and Luciano gave genuine consideration to whether other beneficiaries, in particular Patrizia, should benefit from the final distribution of the trust assets, supports a finding that no genuine consideration was given. As noted above, Marco's and Luciano's evidence in that regard was evasive, circular, and conclusionary, and Mr Di Vitto's evidence gave them no assistance.
208 I also consider that the current proceeding is an instance where what might be described as a 'grotesquely unreasonable' result may of itself be evidence of a breach of duty. Having regard to the inclusion of each of Patrizia, Marco and Luciano in the class of Primary Beneficiaries under the Deed, the 'default' position under clause 4.1 of the Deed, Patrizia's management of the affairs of the trust over many years, and the correspondence between the parties prior to the meeting on 15 March 2013, when all parties corresponded on the assumption that Marco, Luciano and Patrizia were entitled to an equal share of the assets of the trust, the decision to exclude Patrizia went beyond mere unfairness and unreasonableness. Indeed, in their evidence, Marco and Luciano made specific reference to excluding Patrizia (as opposed to excluding other general beneficiaries, or other categories of general beneficiaries), indicating that they understood that Patrizia, along with each of them, had a particular claim to the assets of the trust. They were clearly motivated by their hostility to her. Whether that hostility arose out of conflict over their mother's burial arrangements, their disagreements over the management of the trust, their suspicions regarding Patrizia's dealings with the assets of the trust, or her conduct in lodging caveats over the trust properties does not matter much: what matters is that Marco and Luciano exploited their control of the trust to exclude Patrizia from any share of the assets built up by their parents and husbanded by Patrizia's efforts over many years. That, in my view, amounts to bad faith on their part.
209 In making the above findings and observations, I reject the submissions advanced on behalf of Marco and Luciano to the effect that while Marco and Luciano had a limited understanding of trusts and corporations, they did the best they could in all of the circumstances. As I have said earlier, I do not level any criticisms at Marco and Luciano for failing to understand the Deed: it is a dense and difficult document, and expressed in the archaic language common to such documents. However, I consider that Marco and Luciano were much more astute in business affairs than they might initially appear. They understood the powers of the trustee, and that they were required to 'give consideration' to the beneficiaries. They were advised by solicitors and accountants along the way. They knew of their rights to take control of the trust, and instructed solicitors to engage in litigation.
210 Further, while I accept that Patrizia's management of the trust in the past gives her no special claim to the assets of the trust, it is a relevant background circumstance. Luciano's evidence was that Gino and Caterina played a significant role in making decisions concerning the trust, even after they ceased being beneficiaries of the trust. They were responsible for removing Marco as a director and the shareholder of the trustee, for reasons which did not emerge at trial. That Gino and Caterina entrusted the management of the trust to Patrizia is consistent with the understanding of the parties, at least until March 2013, that in fact, if not in law, the real beneficiaries of the trust were Marco, Luciano, and Patrizia.
211 Finally, given my findings concerning the credibility of the evidence given by Marco and Luciano, I do not agree that I should accept their evidence that in making the decision to pay the assets of the trust to themselves, and excluding Patrizia from the distribution of the assets of the trust, they gave real and genuine consideration to the beneficiaries of the trust, and their decision was not motivated by their animosity towards Patrizia.
212 In rejecting the submissions advanced on behalf of Marco and Luciano regarding the credibility of their evidence, I accept that, notwithstanding the findings I have made concerning credibility, the onus remained firmly upon Patrizia to establish any bad faith or any other breach of duty on the part of Marco and Luciano. However, I consider that, by reason of the surrounding circumstances and the patently unjust result of the trustee's decision of themselves established a prima facie case of breach of duty. While the existence of a prima facie case did not of course shift the burden of proof, the unsatisfactory nature of the evidence bolstered Patrizia's case beyond being a prima facie case to one which satisfied me to the requisite standard of proof.
213 I should say something here about the allegations advanced against Patrizia concerning her use of trust assets for her personal advancement. Some of the allegations were made with some precision,[101] such that I could speculate that they were made with some foundation. However, no evidence, apart from oral evidence, was advanced to support such allegations, and Marco and Luciano (with Mr Di Vitto's assistance) have been in control of the trust for many years now. Further, the suggestion that the reduction in the beneficiaries' loan account over the course of the financial year ended 30 June 2014 is somehow related to payments to Patrizia makes no sense: this loan account recorded amounts owing to the Trani family by the trust, and Mr Di Vitto's evidence is that this debt was cleared by making payments to Marco and Luciano, presumably prior to the purported final distribution of the trust assets on 26 June 2014. Marco and Luciano controlled the trust for the entirety of the 2013/2014 financial year. One could question the propriety of repaying loans made by the 'Trani family' to Marco and Luciano alone, but the evidence was insufficient for me to making any findings about that issue, as well as any findings about the conduct of the affairs of the trustee by Patrizia. In the absence of any pleading or evidence to the effect that the rationale for excluding Patrizia from the trust was the trustee's view that she had already helped herself from assets of the trust, or indeed any solid evidence to support such an allegation, the conduct of the parties with respect to the financial affairs of the trust is not relevant to the determination of the issues in the proceeding.
214 For completeness, should the issue become relevant later, I should add that if I had not found that the 26 June minute was capable of rectification, and thus the effect of the 26 June minute was to distribute the income of the trust to Marco and Luciano, I would not have found that decision to have been impeachable on the grounds referred to in Karger v Paul[102] and the other authorities. First, a finding of bad faith, improper purpose, and/or failure to give real and genuine consideration by necessity involves an evaluation of the subjective intentions of the parties: Marco and Luciano certainly had no intention to distribute just the income of the trust. Further, such a distribution of the income would not be 'grotesquely unreasonable'. While the trustee may have decided to adopt a different course, distribution of the income alone would have left a generous sum of capital in the Vesting Trust, a third of which would have passed to Patrizia under the terms of the Deed.
Marco's and Luciano's entitlements as unpaid beneficiaries
215 As noted above, at the meeting on 26 June 2014, the trustee failed to deal with the prior distributions to Marco and Luciano (and the estate of Caterina) recorded in the accounts of the trust, being $143,481.00 to Marco, and $33,227.00 to Luciano (and $18,000.00 to Caterina). The only evidence concerning the treatment of these prior distributions was that of Mr Di Vitto to the effect that these amounts were 'subsumed' within the payments made to Marco and Luciano on 27 June 2014.
216 It seems that, on and before 26 June 2014, the trustee failed to recognize that pursuant to clause 3.1 of the Deed, the prior distributions of income to Marco and Luciano removed those funds from the trust fund available for distribution on the Vesting Day (pursuant to clause 4 or 4.1 of the Deed), but rather vested immediately as a separate trust fund held by the trustee on trust for recipients of the income at the time of their distribution as recorded in the accounts of the trust. Accordingly, each of Marco and Luciano are sole beneficiaries of separate trusts in respect of those past distributions. Clause 3.1 of the Deed empowers the trustee:
pending payment thereof to such General Beneficiary to invest, apply or deal with such fund or any resulting income therefrom or any part thereof in the manner provided for in SUB-CLAUSE 6.4 of THIS DEED.
217 Clauses 6.4 and 6.3 of the Deed (to which clause 6.4 refers) provide the trustee certain powers to deal with income and capital of the trust with respect to beneficiaries under a legal disability or infant beneficiaries. The Deed is otherwise silent as to how and when income paid to beneficiaries in the past is to be paid to the beneficiary concerned.
218 Accordingly, while I am content to hear further submissions on this point, given the other findings I have made, I am inclined to agree with the statement made by senior counsel for Marco and Luciano that these prior distributions need to be accounted for in any final orders in this proceeding, subject to any argument that by their conduct, and the terms of the 26 June resolution, Marco and Luciano (and Marco on behalf of the estate of Caterina) had waived their right to demand payment to them of those unpaid distributions.
219 To sum up again, I make the following findings regarding the issues in the proceeding:
(a) the 15 March resolution was not effective to appoint 15 March 2013 as the Vesting Day pursuant to clause 4 of the Deed;
(b) the 26 June resolution was not effective to appoint Marco and Luciano as beneficiaries of the Vesting Trust;
(c) the 26 June resolution was effective to distribute the income of the trust earned in the 2013-2014 financial year to Marco and Luciano;
(d) for the avoidance of doubt, the 26 June resolution, as construed, could not be impugned on the basis of bad faith and/or improper purpose;
(e) the remedy of rectification is available to Marco and Luciano to (i) appoint them as beneficiaries of the Vesting Trust, and (ii) amend the dollar figures in paragraph 3(c) of the 26 June minute, in order to give effect to their clear intentions that day;
(f) however, the 26 June resolution, as rectified, was invalid on the basis that the trustee's decision was motivated by bad faith, and the trustee failed to give real and genuine consideration to the entitlements of the beneficiaries, and in particular, Patrizia;
(g) given the above, (noting that it was not contended at trial that, were I to make findings adverse to Marco and Luciano concerning the 26 June resolution, they would not be liable under the principles in Barnes v Addy[103]) Marco and Luciano have knowingly assisted in a breach of trust on the part of Latina; and
(h) having regard to my findings above, further consideration needs to be given to:
(i) the unpaid entitlements owed to Marco, Luciano, and the estate of Caterina;
(ii) whether the status of Latina needs to be regularized in order to give effect to the remedy of rectification;
before making final orders.
220 Accordingly, the further hearing of the proceeding will be adjourned to a date to be fixed to address the final form of orders and the question of costs. Prior to that hearing, it would be helpful if the legal representatives of the parties could give some consideration to the nature of the orders I ought to make to give effect to these reasons: in particular, orders for payment, or orders by way of declarations, or a combination of both.
[1] For convenience and ease of reading, I refer to each of the members of the Trani family by their first names. No disrespect is intended.
[3] The affidavit of Luciano sworn on 5 May 2016 discloses that Catherine Street was ultimately sold for $448,000, although some doubt about this was raised during crossexamination.
[4] Mr Di Vitto deposed that sums of $344,851.98 and $98,505.75 ($443,357.73 in total) were deposited into the joint account.
[5] The minor discrepancy between this amount and the amount referred to in paragraph 21 above reflects the difference between the amount Mr Di Vitto had expected the trust funds to earn by way of interest and the final balance of Latina's bank accounts when they were closed on 27 June 2014.
[7] This contention was not pressed at trial.
[8] Changes to the affidavit as filed have been made to reflect the determination of objections made at the commencement of the trial.
[9] This equates to paragraph 3(c) of the 26 June minute.
[16] Exhibit 'PT-7' to the affidavit of Patrizia sworn 6 October 2015 (Exhibit C).
[17] This email chain was not in evidence.
[29] I understood from this answer that he had formed the view, based upon material which was not before the Court, that Patrizia had used trust assets to benefit her personally.
[31] See for example Marco's evidence that Gino was maltreated while staying in Patrizia's home. Further, Luciano refused to give any credit to Patrizia for her work in managing the affairs of the trust, saying words to the effect that it was her 'responsibility', rather than duties undertaken voluntarily.
[33] Fowler v Commissioner of Taxation [2013] FCAFC 69, [142], and the authorities referred to therein.
[35] Macquarie Dictionary, 7th Edition.
[49] Finn, P (2016) "Fiduciary Obligations", Federation Press, 45.
[53] [1998] FCA 51; (1998) 79 FCR 469, 480.
[54] Karger v Paul [1984] VicRp 13; [1984] VR 161, 164.
[56] See Jacobs Law of Trusts, [1608].
[57] Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Ltd [1998] FCA 51; (1998) 79 FCR 469, 480.
[58] See Jacobs Law of Trusts, [1608].
[59] Ibid, [1610], referring to Parkes Management Ltd v Perpetual Trustees Co Ltd (1977) 3 ACLR 303, 311.
[60] Ibid [1609] referring to Re Pauling's Settlement Trusts, [1964] Ch 303, Esso Australia Ltd v Australian Petroleum Agents' and Distributors' Association [1999] 3 VR 642.
[62] Hampden v Earl of Buckinghamshire (1893) 2 Ch 531, 544.
[66] [1984] VicRp 13; [1984] VR 161, 166.
[72] [2014] VSC 290; (2014) 42 VR 325 (an application for leave to appeal out of time was dismissed by the Court of Appeal [2014] VSCA 181).
[77] [2016] VSC 140, [63].
[80] One might expect that any documents of this character in this proceeding, apart from the 26 June minute itself, have been the subject of unchallenged claims for legal professional privilege, given the involvement of the solicitors for Marco and Luciano at all material times.
[84] Exhibit 'PT-7' to the affidavit of Patrizia sworn 6 October 2015 (Exhibit C).
[92] See the letters extracted at paragraphs 10 to 12 of these reasons.
[93] Affidavit of Luciano Trani sworn on 13 April 2013 in the caveat removal proceeding.
[101] See, for example, Marco's evidence that there was a loan of $50,000.00 (presumably made to Patrizia) and $200,000.00 transferred from one account to another.
Trani
Trani [2018] VSC 274
(1999) 197 CLR 83
(2014) 42 VR 325
(2001) 3 VR 526
(1995) 41 NSWLR 329
(1996) 40 NSWLR 374
(1998) 79 FCR 469
(2009) 26 VR 335