Torlonia v Wright

The taking of accounts before the judge

1. Traditionally, where a judge decreed the taking of accounts, they would be taken before a master, or as that office later became in this State, an associate judge. [2] This was described by Young CJ in Eq in Cavasinni v Cavasinni: [3] As a result of the Chancery Commission of 1850, equity procedure was reformed and the tasks performed by the Masters in Chancery were transferred to Clerks within the Judges' chambers. Accordingly, what happened after a decree in a partnership suit was that the Clerks would enquire sitting in the Judges' chambers, hearing evidence if need be, but because they were acting completely as the Judges' delegates, they were bound by what the Judge found. They did not make a decision, but presented a report to the Judge. The Judge could either adopt that report or send the matter back for further enquiry. In due course the Clerks were renamed Masters. The same procedure applied in New South Wales so that it was not possible for the Master on an enquiry to make any different determination on the facts than that made by the Judge.
2. With the demise of the office of Associate Judge, it has become necessary to engage alternative machinery for the taking of accounts. Sometimes, it is referred out to a referee; but in my view parties who seek public justice in the courts should not ordinarily be visited with the additional cost of private justice before a referee. Alternatively, the taking of accounts can now be referred to a registrar, as formerly they were referred to an associate judge; the delegation under (NSW) Civil Procedure Act 2005, s 13, dated 26 November 2012, confers on a registrar all the powers of the Court under UCPR Part 46 (Accounts and Inquiries), with an irrelevant exception. However, particularly where evidence relevant on the account has already been taken before the judge, it is often convenient and efficient for the account to be taken by the judge who heard the substantive proceeding, and that is the procedure that was adopted here.
3. The principle that the officer taking the account, being the delegate of the judge, cannot make any determination inconsistent with those made by the judge, does not apply with the same force where the judge takes the accounts. However, in the context that the taking of accounts is the second stage of a process in which the first has decided the liability to account, the well-established conventional approach should not readily be discarded just because the same judge takes the accounts has heard the first stage. Moreover, it would be contrary to dictates of efficiency and finality to allow questions already decided to be reopened on the taking of accounts.
4. However, the issue does not loom large in this case. In the substantive judgment, having held that there was a relevant accounting relationship, I rejected Mr Wright's defence that he had furnished adequate accounts on several bases, including relevantly that authority for the payments to Etres Resources was not established; authority for the payments to Frank McDonald to the extent they exceeded $275,000 was not established; and the payment of $871,992.23 to Mr Wright or his related entities, claimed as advances against remuneration and reimbursements, was insufficiently supported by vouchers such as invoices, time records, receipts for disbursements, or any other evidence. But as was then made clear, I did not finally determine that any of those expenditures should be disallowed, but only that the accounts so far rendered did not amount to a sufficient account: [4] [50] That is not to say that these matters will necessarily be resolved in favour of Ms Torlonia. I am not at this stage taking accounts, but determining only whether there has already been an adequate account rendered. But these matters represent such deficiencies in the schedules, so far as they represent an attempt to account, that it cannot be accepted that there has already been an adequate account. Mr Wright has not rendered accounts such as would entitle him to resist an order for accounts, nor has he adequately explained what he has received and how it has been applied such that it could be said that an account would serve no utility.
5. In accordance with the usual practice on the taking of accounts, the parties were required to identify the evidence from the first hearing on which they relied on the taking of accounts. Additional evidence was adduced on the taking of accounts, on each of the three remaining categories of falsifications, and there was further cross-examination of Mr Wright and of Mrs Torlonia. In those circumstances, the issues are to be resolved having regard to all the evidence before the Court that informs them, both at the substantive hearing and on the taking of the accounts. That said, some relevant findings were made in the principal judgment (in particular, as will appear below, in connection with aspects of Mr Wright's remuneration and expenses claim), and they would not be departed from, at least in the absence of additional relevant evidence.
6. In respect of falsifications, the accounting party (Mr Wright) bears the onus of substantiating and justifying the disbursement.

Etres Resources

1. The first category of falsifications comprises 14 payments, made between 18 April 2011 and 27 March 2012, totalling $1,016,000, to Etres Resources Limited. Mr Wright contends that these were investments in Etres made on behalf of Mrs Torlonia, with her authority.
2. As to one of these payments (item 898 - $50,000 on 21 March 2011), there is an issue of categorisation: Mr Wright says it was a payment to his related company Etruscan Capital on account of his remuneration, and ought to be dealt with in that category of falsifications. But while in Mr Wright's account it is attributed to Etruscan Capital, in the absence of any better primary record the best evidence is a bank reconstruction of the term deposit account out of which the payment was made (account 0455), which shows the payment as being made to an account which was held by Etres. Accordingly, I conclude that it was paid to Etres, and deal with it in this category. (Ultimately, so long as it is not counted twice, it makes little difference under which heading it is addressed).
3. Etres Resources Limited was incorporated - originally under the name Etruscan Resources Limited - by Mr Wright on or about 28 August 2008, for the purposes of investing in and developing mining tenements, located in the Philippines.
4. Mr Wright agreed that (until he was replaced in early 2014) Mrs Torlonia never made a written application for shares in Etres, and received no document - letter, diary note, bank statement or anything at all - which would show that she had made an investment in Etres. He acknowledged that - because all but three such investments, amounting to $91,000, were made from term deposits, and not from the ordinary bank accounts - they would not have been apparent to Mrs Torlonia from the bank statements to which she had access. But Mr Wright says that Mrs Torlonia authorised these investments in Etres in the course of conversations between them. He repeatedly asserted that Mrs Torlonia was fully aware of Etres, and that the status of its development and pathway to an initial public offering, investment in it, and even potential visits by Mrs Torlonia to the tenements, were discussed in many conversations. However, he did not descend to specifics, and discussion of those matters does not constitute or evidence authorisation of an investment.
5. Mrs Torlonia does not dispute that Mr Wright had many conversations with her about Etres and its operations in the Philippines, nor even that she asked about making an investment; but according to her, his response was always to the effect that the time was not yet ripe, and that never changed. She denies that she ever authorised an investment in Etres, and says that she was never told that she had been allocated shares in Etres, nor ever received a share certificate.
6. At the first hearing, Mr Wright said: Very early on in the activities before the company was incorporated, after the company was incorporated it would have been too early for her to invest and she did not invest. She could have been a founder shareholder but she wasn't because it was too early.
7. That answer must be seen in the context that the company was incorporated in late August 2008. Mr Wright said that it was in about 2011 that he had Mrs Torlonia proceed to invest, and he at first confirmed this at the second hearing: Q. You told Mrs Torlonia that when she inquired as to investing, you said, "Wait till things settle down, keep your powder dry"? A. I had very frequent discussion with the plaintiff, and most of those discussions, the topic of what I was doing in the Philippines and Etres Resources was discussed. Q. Yes? A. Very early after incorporation, very early in the piece, yes. It was too early for Mrs Torlonia to invest. Q. I think you told us last time that it was about 2011 when you had her invest? A. That's correct.
8. However, Mr Wright had in fact caused Leccino, in August 2008, to pay $15,000 to Etres' lawyer in the Philippines, and in September 2008, a further $100,000. When these were drawn to Mr Wright's attention, he said that he did not recall these payments - although he had referred to them in an affidavit of 23 August 2016. When it was distinctly put to him: "It's not true, is it, to say that she agreed in August 2008 to invest in this company?", he resorted to "Again, I am just going to repeat what I've said, I discussed this investment". The bench pressed for a direct answer, and the question was asked again; this time Mr Wright answered "I certainly would have discussed it in August 08 because this is when I was about to incorporate the company, and I would have discussed that on many occasions, exactly what I'd been doing and the initial visits I'd had to the Philippines". Those circumstances would explain a conversation about Etres, but are entirely equivocal as to obtaining express authority to invest, and are inconsistent with his evidence that at about the time of incorporation it was too early for her to invest. Indeed having invested at the time of incorporation, she should - according to Mr Wright's evidence - have been a founder shareholder; yet he said that she was not, because it was "too early" for her to invest.
9. Mr Wright was asked: Q. When she said to you, "Do you want me to invest", in the early stages you replied to her, "Not yet, keep your powder dry". Is that right? A. I think for a substantial investment it's probably correct. Q. You don't regard $115,000 as a substantial investment? A. It is a substantial investment, yes. Q. Why did you qualify your last answer? [OBJECTION - QUESTION ALLOWED] Q. The question is, why did you qualify your last answer? A. You're asking me to recall details of conversations that happened a considerably long time ago, and transactions that I have not looked at in detail because they fall outside the accounting period.
10. Most of the investments said to have been made on behalf of Mrs Torlonia were made in 2011. Mr Wright said that the company was undertaking a drilling program and preparing for its IPO, so that money was required from shareholders and investors to provide working capital. He was asked: Q. At no time did you say to her, "Etres needs another $100,000"? A. That's not correct, Mr Bracks. Q. Did you say that to her? A. I don't think so, no. The conversations to invest were in the light of the planned initial public offering of the company. In total, some $4 million was raised towards that process. Q. But isn't it a fact - I'll go back - did you ever discuss with Mrs Torlonia the amount she wished to invest in Etres? A. We talked about an investment on multiple occasions, she said - Q. Did you ever discuss the amount she was prepared to invest in Etres Resources? A. Not in total, no.
11. Mr Wright at one point said that there was a conversation prior to each particular investment, by telephone, but conceded that he would not in those conversations say that Etres needed more money; "the discussion would have been about what I was doing with Etres, what my activities were, what I was doing in the Philippines, the state of the IPO, and the likelihood of its successful listing on the Stock Exchange and the attractiveness to invest now". Again, a discussion about those matters is not equivalent to obtaining authority to invest.
12. Mr Wright deposed: I caused the share certificates to be issued in a variety of names, which specifically were not the plaintiff's, as this had always been the practice. Apart from a few horses, I cannot recall any investment being held directly in the plaintiff's name. I caused the shares being held by the plaintiff to be held directly in her name prior to the administrator being appointed so that there was clarity as to who the underlying shareholder was. I also caused a new share certificate to be issued for the 7,693,560 shares held in Etres Resources Limited and I signed the share certificate being the only director at that point in time. I had been the sole director of Etres Resources Limited since two other directors resigned.
13. For Mr Wright it was submitted that it was unremarkable that shares acquired in Etres on behalf of Mrs Torlonia were not issued in her name. Mr Wright said that shares were not issued in Mrs Torlonia's name, consistently with the position that at no time between 2003 and 2014 was any material Australian asset acquired in Mrs Torlonia's own name - with the exception of some horses - and that she did not receive or sign any application or subscription form "because that was not how the trust's affairs had been managed, at the instruction of the plaintiff when the discretionary trust was established". It is probable that this was for fiscal reasons, associated with Mrs Torlonia's residency for taxation purposes, and I draw no conclusion from the mere circumstance that the shares were not held in Mrs Torlonia's name. However, this does not explain why the shares could not have been held in the name of Leccino (as indeed a relatively small number of shares in Etres were held). Nor does it explain why, on the eve of the company going into administration, Mr Wright would cause a share certificate to issue in her name (when it could have been in Leccino's name).
14. However, there are reasons for concluding that shares were not even issued to a trustee or nominee on behalf of Mrs Torlonia. In the course of his cross-examination on the taking of accounts, Mr Wright said that the shares reserved for Mrs Torlonia were held in the name of Etruscan Capital (an entity controlled by him). This is apparently consistent with a letter dated 23 November 2015 from the administrator to Mrs Torlonia's solicitor, which stated that Mrs Torlonia was not listed as a shareholder in her personal capacity, but in the records provided to the administrator, "there is an entity listed as a shareholder in the name of Etruscan Capital P/L ITF Philippa Morgan", and that Mr Wright had advised the administrator that this shareholding was held on trust for Mrs Torlonia (who is also known as Philippa Morgan); there were 7,693,560 shares so held, of a total issued capital of 33,088,416 shares said to represent paid up capital of $3,446,759.
15. However, on 20 February 2012 Mr Wright lodged with ASIC a notification of resolutions (Form 2205) recording a resolution on 12 February to consolidate issued shares on a 7.9:1 basis, with the result that 129,393,635 issued shares were consolidated into 16,378,941 - on which a total of $1,775,102 had been paid. While this appears not to have been the final share structure of Etres, in that additional shares were apparently issued after that date to increase the total shareholding to 33,088,416, this document is significant because (1) it was admittedly prepared by Mr Wright; (2) in attaching the details of the "top 20" members, it lists 12 shareholders which together account for the whole of the then 16,378,941 issued shares and the whole of the then $1,775,102 paid up capital; and (3) by 12 February, all but the last $90,000 of Mrs Torlonia's investment had been made, so that her investment ought to have accounted for $926,000 of the paid up capital. In that document, Etruscan Capital is recorded as holding 1,101,266 fully paid shares after the recapitalisation, on which only $100,000 was paid - and they were said to be held beneficially, not on trust. At the first hearing, when taken through these documents, Mr Wright - at the last minute, when other possibilities had been excluded - suggested that Mrs Torlonia's shares may have been held by Niranga Pty Ltd - another entity controlled by him, which he had said held his family home - which was shown as holding 2,405,063 fully paid shares, not beneficially held - but on which only $100,000 was paid. Leccino was shown as the (non-beneficial) holder of 113,694 fully paid shares (which appear to have been issued on 28 April 2011), on which $18,336 was paid. Together, the amounts paid up in respect of the shareholdings of Etruscan Capital, Niranga and Leccino total only $218,336. The balance of the paid up capital was attributed to other shareholdings, which could not have included Mrs Torlonia's. This document cannot be reconciled with Mrs Torlonia's then investment of $926,000 and the shares allegedly reserved for her.
16. It was submitted for Mr Wright that there was no inconsistency between funds being advanced on behalf of Mrs Torlonia, yet no shares being immediately issued: he says that the advances were recorded as current liabilities, and at various points later converted to ordinary shares, which in his experience is a not uncommon manner of investing in smaller companies. That may explain the non-issue of shares in the short term; but it does not explain why $700,000 approximately of her investment was not reflected in shares at the time of the consolidation in February 2012.
17. According to Mr Wright, eventually more than 50% of Etres was held by the majority shareholder Orvieto Capital Pty Limited, a company controlled by one David Allott; Mrs Torlonia ended up holding 23%; and Mr Wright and his associates held about 10%. He explained that he acquired his interest on setting up the company, by converting "moneys owed to me for fees and money I'd put into the company into shares from time to time, as we had various share issues". When asked how much money he and his interests contributed, he answered "I don't know", but "guessed" about $100,000.
18. For corroboration of his assertion that Mrs Torlonia authorised investments in Etres, Mr Wright relies on her response to an email which he sent on 16 February 2012: Please can you give me a list of all your grandchildren (ideally with differing postal addresses) and their email addresses (or their parents address). I want to prepare the Application Form for their Shares in Etres.
19. Mrs Torlonia responded on 18 February with a list of names and addresses of four grandchildren. When cross-examined (at the first hearing) about this correspondence, Mrs Torlonia said: Q. There was, he, he rang me up and he said, "Can you give me the names of your grandchildren which are pretty exotic, so that I can put them in which will make the, the thing look - I'm not buying any shares for them", he said, "I just want names that make them look more interesting". And so I put in the names of my grandchildren like that. Q. If there was never any intention to acquire shares, there would have been no reason to provide the names of your grandchildren, would there? A. He, he asked me if I would provide them so that it would make his shareholding look more interesting, but there was no ever, ever any intention to buy shares, nor did he ask me to. Again I said, "Do you want me to buy shares?". "No, not now, the moment is not ripe".
20. There are obvious illogicalities about that answer - how the shareholding would look more interesting if shares were not issued to the grandchildren is not apparent. But the provision of names of grandchildren in whose names shares might be issued is not equivalent to the provision of authority to use her own money to invest. Even if Mrs Torlonia was aware that some shares might be issued in the names of her grandchildren - and it is not apparent that any shares were so issued - that was after the consolidation in February 2012, after almost all of her "investment" had been made, and in any event does not evidence authorisation by her of the use of her funds for the purpose of any such investment.
21. Mr Wright has not persuaded me, on the balance of probabilities, that he ever had any authority or approval from Mrs Torlonia to invest on her behalf in Etres. In particular: 1. there was no documentary evidence that Mrs Torlonia had any interest in Etres until January 2014, when administration was imminent; 2. the investments were made via accounts the effect of which was substantially to obscure them from Mrs Torlonia; 3. Mr Wright's acceptance that he at first told Mrs Torlonia that - at least in the early stages after incorporation - it was too early for her to invest, tends to corroborate her version; yet Mr Wright caused her to invest $115,000 at the time of incorporation in or about August 2008; 4. Mr Wright's evidence of oral authority does not descend to any particularity and rises no higher than that Etres was the subject of frequent discussions; he has never given evidence of any specific conversation in which express authority for a specific investment was given, and on his own evidence the amount or limit of any such investment was not discussed; 5. notably, nothing in such correspondence as is in evidence - which includes some references to Etres, the Philippines and Mr Wright's activities there - contains the slightest hint that Mrs Torlonia had an interest in Etres; and 6. the 20 February 2012 ASIC document, prepared by Mr Wright, is irreconcilable with his version.
22. The significance of the absence of any written authority or record, or of evidence of any specific conversation conveying authority, is exacerbated when the conflict of interest inherent in Mr Wright's position is appreciated. While he was Mrs Torlonia's trusted confidant and adviser, he was concurrently investing her moneys in a speculative mining venture in which he and his associates had a substantial interest (initially 50%), for which he paid much less pro-rata than Mrs Torlonia paid. Those circumstances called, at the least, for him to obtain the clearest of authority from Mrs Torlonia, if he were to proceed at all.
23. Accordingly, Mr Wright has not justified the payments to Etres, and the falsifications in this category, amounting to $1,066,000, are upheld.

Frank McDonald

1. The second category of falsifications comprises payments made to Frank McDonald, insofar as they exceeded $250,000 in total.
2. Mr McDonald was Mrs Torlonia's uncle. He had been a well-known art dealer, who resided in an apartment at Potts Point until about 2000, when he moved to Italy, where he lived initially in a villa (La Crocetta) near Lucca, moving to another (La Corte Bracco) close by in late 2009 or early 2010, and eventually to the Olgiata, where Mrs Torlonia lived, just outside Rome, in early 2011. He died in December 2011. Mr McDonald had been assisted and/or advised by Mr Wright, and Mr Wright managed aspects of Mr McDonald's affairs and accounts. It was through Mr McDonald that Mrs Torlonia was introduced to Mr Wright.
3. Mrs Torlonia agreed that during the last couple of years of Mr McDonald's life, from about 2009, she had regular conversations with Mr Wright about Mr McDonald's finances, and arranging the transfer of money to or for him, "especially prior to me lending him the money". On the first such occasion, Mr Wright asked her to lend Mr McDonald $25,000, in respect of which she said. "That was fine. I don't think there was any actual documentation of that initial $25,000".
4. On 25 July 2009, she sent an email to Mr Wright: Whatever comes or goes, I think we must give Frank $10,000 so that he can pay the American Express, wages and telephone immediately. We need to take great care with this transaction or he will see me as his benefactor, (and a rather grudging one) and will begin to dislike me,
5. In an email of 26 July 2009 to Mr Wright, after he had indicated that he would arrange the $10,000, Mrs Torlonia wrote: I shall be happy to know that Frank has the funds to pay his most urgent debts.
6. Mrs Torlonia said that about a year after the $25,000 advance, "Frank had come down to stay with us. He was short of money and Andrew asked me to lend him more money, $250,000". She said that she was slightly taken aback at the suggestion of $250,000, but as Mr Wright apparently thought that she could afford it, she was prepared to go along with it. Mr Wright's evidence included that Mr McDonald had an interest in Sphinx Art Pty Limited, which had invested in artworks, funded by a loan from a third party, and had negotiated a discount of that loan to $125,000, and Mr Wright suggested to Mrs Torlonia that she fund the repayment, on the basis that Mr McDonald would sell the artworks owned by Sphinx to repay the loan. Given the terms of the loan referred to below, this may be a partial but is not a full explanation of the transaction. In any event, on 2 August 2009, Mr Wright prepared a document which recorded an agreement between Mrs Torlonia and Mr McDonald, to the effect that she would lend him $250,000. The agreement recited: [5] Whereas, Philippa Torlonia [and/or her nominees and/or related party entities, including specifically Leccino Pty Limited, Vittoria Torlonia and Charles de Nanteuil] has agreed to lend Frank McDonald [and/or Sphinx Art Pty Limited and/or NSW Galleries Pty Limited] A$250,000 on the following terms. Whereas, the net funds to be received by Frank McDonald, will be sufficient to pay the rent due in August 2009 and for limited working capital, the overarching aim of the conditions precedent and conditions subsequent to the granting of the loan are to ensure that Frank McDonald realises sufficient capital within a short to medium time period to adequately fund the balance of his total projected expenditure. The stated realisation aim of the process is to build a capital fund of a minimum of A$1.5M, after the payment of all liabilities.
7. The agreement provided for a loan of $250,000 for a 12 month term expiring 31 July 2010 at 10% flat interest (so that $275,000 would be repayable), with the funds to be paid as to $100,000 to Sphinx Art (to discharge the rights of any other party to assets of Sphinx Art), $10,000 and E20,000 as directed by Mrs Torlonia, $7,500 to Mr Wright for costs, and the balance (approximately $92,500) to Mr McDonald's company NSW Galleries (to be used for Mr McDonald's rent and working capital "through to say January 2010"). The agreement contemplated that Mr McDonald would sell various artworks to generate income to cover subsequent expenditure, and to repay Mrs Torlonia. The agreement also provided for up to ten works of art to be set aside and transferred unencumbered to Mrs Torlonia if the loan was not repaid in full by 31 July 2010.
8. However, between 27 July 2009 and 18 January 2012, Mr Wright disbursed a total of $437,859.49 from Leccino to or for Mr McDonald. Mrs Torlonia contends that to the extent those payments exceeded the agreed loan of $250,000 - that is, to the extent of $187,859.49 - they were unauthorised.
9. Mr Wright says that Mrs Torlonia supported her uncle financially over at least the last five years of his life, and that he became increasingly dependent upon her; that in pursuance of this Leccino made various payments for and on behalf of Mr McDonald, including to his company NSW Galleries, his health fund and for the rent of his villa in Lucca; and that any notion that her support for him was capped at $250,000 ceased in the light of the circumstances being "irrevocably changed" when Mr McDonald was unable to repay the loan and "it became clear" that he was completely financially dependent on Mrs Torlonia. In addition, he says that after Mr McDonald's death, Mrs Torlonia took control of his remaining artworks. In short, Mr Wright says that there was no capped loan after it became clear that Mrs Torlonia would have to support Mr McDonald in all respects, and in circumstances where she had control of his remaining artworks it made no difference.
10. A major plank in Mr Wright's case was that although it must have been apparent to Mrs Torlonia that the $250,000 would be exhausted by February 2010, she became Mr McDonald's primary carer and continued to request Mr Wright to provide money for Mr McDonald's support. However, the argument that Mrs Torlonia must have known that the $250,000 would have been exhausted by early 2010 is undercut by his concession that he never told her how much had been paid to or on behalf of Mr McDonald by Leccino. Mrs Torlonia was cross-examined to suggest that the loan funds would have been exhausted by early 2010, but she answered that she did not think there was a time frame of that kind.
11. Mrs Torlonia accepted that she became Mr McDonald's primary carer from the time he came to live with her until his death in December 2011, and that she was largely financially responsible for him during that period, although she maintained that he still had some money of his own - he had sold some artworks, and he had sold his Potts Point home for a sum in excess of $1 million - and that his expenditure was not great during that period, as he was living with her. She maintained that, using his power of attorney which she held, she paid expenses out of his bank account. She agreed that she was happy to support Mr McDonald; and she did not call up the loan, nor expect it to be repaid during Mr McDonald's lifetime. But she maintained that there was a cap on the loan. When asked whether she ever communicated the cap to Mr Wright, she answered: Mr Wright never asked me to give any additional money nor did he ever send me a rendering of what - I used to ask him continually, can you tell me -
12. Asked again whether she ever told Mr Wright that his payment should be capped, she answered: Well he knew it, it was written in black and white.
13. Pressed, she said: I didn't tell him to stop making payments to Frank but I didn't tell him to go on making it over and above the loan. … He never told me the loan had run out. I asked him repeatedly to let me know about my finances. He never did. I didn't know if the money was money of his, of Frank's. He had control of both lots.
14. Mrs Torlonia believed that Mr Wright was causing Mr McDonald's expenses to be paid, if not from the $250,000 that she agreed to lend, then from Mr McDonald's own resources.
15. For Mr Wright, reference was made to some of the correspondence between the parties, as indicative that Mrs Torlonia assumed responsibility for Mr McDonald's financial support, but there is nothing in that correspondence that bespeaks any agreement or acceptance on her part that her support of Mr McDonald through Leccino was not capped at $250,000.
16. On 16 November 2009 - three months after the loan agreement - Christiana, one of Mr McDonald's domestic staff, sent a letter to Mr Wright requesting that he "send once a month 7,000 Euros", for Mr McDonald's monthly expenses, particulars of which were provided. When the whole letter is read, it becomes clear that the burden of the request was that payments to fund Mr McDonald's expenses be remitted monthly rather than fortnightly. This letter was copied to Mrs Torlonia, who responded on 17 November: I have been able to see this letter and it would appear to be very just. I do want you to understand that when I lent Frank the money, I never attached any strings. Furthermore, I made him the offer to come and live here where it would be cheaper than it is in the house at Lucca. The idea of the loan was entirely Andrew's and he did it for Frank's good. He is very aware that he also increased the burrowed [sic] amount from 175,000 to 250,000 without asking me and for this he would feel the responsibility of paying back the loan as arranged in a year's time, So I believe that he is merely trying to do his best to help Frank but as I cannot open his letter to you I cannot be sure.
17. It was suggested that this amounted to agreement by Mrs Torlonia to pay Mr McDonald's living expenses of E7000 a month, but it is nothing of the sort. To that suggestion, she replied "What I did was give him as much money as I could. When that money had run out, I suggested he came and lived with me". She added that she thought that Mr McDonald had also generated some income through some art sales during that period. When asked what it was that she thought appeared "just", she answered: Because I didn't - I didn't ever know how much money had gone out from that payment that - of the money I left him and I didn't know - I mean, I knew he had sales pending and I didn't know how it was being doled out. In fact both Christiana and the following secretary, Beatrice, said "we don't seem to have received the money that was to come to Frank's entity", the New South Wales Galleries or whatever it was. Frank himself said it once and both Christiana and Beatrice said it, and I had - I never saw the money that went in or out of that, so I had no idea, and I said it seemed just that he should be able to have his rent paid, and his housekeeper and his secretary, and he did make sales but I don't know what they were.
18. In my view it is plain on the face of the correspondence that what she thought "just" was the request that payments be made monthly, not fortnightly. I do not perceive in it any acceptance on the part of Mrs Torlonia of a responsibility to pay from her own resources, over and above the agreed $250,000 loan, monthly instalments of E7,000 to cover Mr McDonald's living expenses.
19. On 13 February 2010, Mr Wright sent an email to Mrs Torlonia: The Frank issue is constantly on my mind and if he goes back I may go to Lucca in say 3/4 weeks and deal with him, and the house in my own way face to face. I could go on say the 9th March, but not before. If he stays here I will begin to draft the written instructions that Frank will need to sign to put in place the sale of the pictures Sotheby's viewed at Christmas and the sale of other items. A few weeks ago I felt as Charlie does, but I no longer feel that way. His avoidance of me and everything to do with money and the future, apart from fanciful schemes, may well be old age rather than manipulation.
20. Mrs Torlonia responded: Re Frank, I am pleased that you understand that he is not wickedly cunning but rather fearful and unable to cope. Life would be so much easier if he would hand over the burden of running his life to you and me and, as Charlie said, it would be so much easier if he agreed that he is now retired and decided to write a book. Not being in the first line of kinship, I think there is every chance that he will tell you and/or me to go to hell if we try and move him.
21. On 22 December 2010, Mrs Torlonia sent an email to Mr Wright: Frank is beyond making any decision for himself and neither of my sisters seem inclined to do much. There are his next of kin, Timmy and Nickie Allen, but I doubt they will do anything more than scrutinise the will to see what is in it for them. Equally tough is the son of his half brother, Pete. Like the other two, he has the complex of feeling that the world owed him a living. Somehow, somebody has to have his power of attorney so that some stance can be taken. As I said, I understand that you have washed your hands of him as have my sisters and to a certain extent Charlie and Vittoria … so it leaves a poor old thing about my size who will have to go into battle. But I need to be equipped.
22. By about January 2011, Mrs Torlonia was taking steps to acquire at least a limited power of attorney for Mr McDonald's affairs in Italy. On 20 January 2011, Mrs Torlonia sent Mr Wright an email in which she addressed Mr McDonald's financial situation: Franks' finances. There is 22,000 euro in the bank here and Beatrice believes that there is a further 20,000 in England. Hopefully, in June, there will be 80,000 from a sale of a picture to Victoria from the French gallery. Unfortunately, Frank can no longer work, so the line will be ruled below this amount. I am tipping that the furniture and posse4ssions here will fetch very little money. … Frank is far brighter than when I arrived at Christmas. … Both Beatrice and I have separate POAs for Italy. They are limited to matters for the house and housekeeping but we can sell the car etc. Beatrice can sign in the bank and I think it is good that she has a POA as there may come a moment when she will need to sign off on electricity etc. … I have used your name as God and said that all of the accounts and receipts need to be kept for your meticulous scrutiny. I think she will do it but as I know full well that you will never have time for these little details, we shall need somebody who will look after them.
23. The letter proceeds to discuss future options for Mr McDonald's accommodation, in Italy or Australia, and continues: If we could know that he would deteriorate quickly, he could use all of his money and stay here in glory for the next six months or even a year and then travel to Australia as a pauper but hopefully, unknowing of his fate, accept his treatment and where he would be living.
24. Later, it refers to the sale of the paintings, to repay the debt to Mrs Torlonia.
25. On 5 February 2011, Mrs Torlonia sent Mr Wright an email: Re Frank, we do need to move fairly fast to advise Francessco Pesenti [Mr McDonald's then landlord] just what we intend to do or we shall be responsible for a further extended lease. I spoke to Rosita and I found that their position is hardening. She started to tell me that Frank's deposit would be eaten up with the costs of putting the house back in the state that it was. …
26. For Mr Wright it was submitted, focussing on the first of the quoted paragraphs, that this indicated some concern on Mrs Torlonia's part that she (and Mr Wright) might incur responsibility for an additional lease term. However I do not consider it indicates any acknowledgment of personal exposure to any additional lease liability that might be incurred, beyond the agreed loan; it involves no more than an understandable concern for her uncle's position - as the second paragraph tends to confirm. Likewise, in an email of 17 March 2011 to Mr Wright, in which Mrs Torlonia referred to costs that the landlord might claim, she was not acknowledging or assuming responsibility for those costs, but seeking to safeguard Mr McDonald's position.
27. On 12 April 2011, Mrs Torlonia sent Mr Wright an email in which she wrote: The whole business of the loan to Frank is decidedly frustrating and when we did meet there were still too many question marks left hanging in the air. As you facilitated the loan to him, I hope that you will sort it out for me. … When discussing Frank's future together, I think we agreed that there could be a two step plan for him after he leaves the villa. The first step was to be an apartment in Rome or somewhere close to Tori and me until he could not longer manage and then a nursing home in Italy or Australia. From all that I learn from Beatrice, there may not be much time for the apartment as he is growing more confused by the day.
28. On 20 July 2011, Mrs Torlonia sent Mr Wright an email in which she requested that the anticipated royalty receipt from Wambo be placed in an account accessible only by her, with the facility to make overseas transfers and payments in a larger sum than the current limit of E2,900. She wrote: Whilst I do not want to change much money into euro, I shall need quite a lot as Frank's remaining commission will not come through until the beginning of September.
29. In context, this is plainly not a request for an advance to or for Mr McDonald, but an indication of what Mrs Torlonia would herself need (even if in part on account of Mr McDonald living with her). It also confirms that Mr McDonald still had some income of his own.
30. On 25 July 2011, Mrs Torlonia sent Mr Wright an email in which she referred to "cutting Frank's costs" and requested that Mr Wright prepare a pension application for him. This indicates, not that Mrs Torlonia proposed to fund his expenses from her own resources, but that she wanted his expenses to be reduced and a pension sought to cover them.
31. There is no hint in any of the correspondence to which I have referred - which is essentially that on which Mr Burnett, for Mr Wright, relied - that Mr McDonald was to be supported other than out of his own resources, or that the loan was to be extended; quite the contrary, the burden of the correspondence is as to how Mr McDonald's own remaining resources were to be realised and used to support him, and to repay Mrs Torlonia's loan. A power of attorney was required so that his resources could be managed, not to enable Mrs Torlonia to spend her money on him - which if so minded she was free to do.
32. Mr Wright provided no detail or particulars of any conversation in which, as he maintained, Mrs Torlonia asked him to pay expenses for Mr McDonald in excess of $250,000. In any event, Mr Wright's evidence did not rise so high as to assert that Mrs Torlonia had asked or authorised him to pay expenses for Mr McDonald out of her funds in excess of the $250,000 she had agreed to lend. A request made by her as Mr McDonald's carer, to Mr Wright who had control of Mr McDonald's resources, to make a payment on his behalf does not implicitly convey authority to use Mrs Torlonia's funds for that purpose; the more obvious inference is that Mr McDonald's resources would be used.
33. Accordingly, I do not accept that Mrs Torlonia asked or authorised Mr Wright to pay expenses for Mr McDonald out of her funds, in excess of the $250,000 she had agreed to lend.
34. The submission founded on the circumstance that Mrs Torlonia, following Mr McDonald's death, has taken possession of some artworks - as she acknowledged - is obscure. There is nothing inconsistent with her doing so, as the loan agreement contemplated, in order to enforce recovery of the loan and interest amounting to $275,000 from Mr McDonald's estate; and concurrently maintaining that she authorised the advance of no more than $250,000 and holding Mr Wright liable for the excess.
35. However, Mrs Torlonia conceded that the payment of $2,620 for Mr McDonald's grave was specifically authorised by her, and that she did not consider it a payment to or for Mr McDonald. Accordingly, item 613 will be allowed. Otherwise, Mr Wright has failed to discharge his burden of showing that payments to or for Mr McDonald in excess of the agreed $250,000 loan were authorised, and the other items in this category, which amount to $185,239.49, will therefore be disallowed.

Payments to Mr Wright and his personal entities

1. The third category of falsifications comprises 33 items, being payments made to Mr Wright and his personal entities, totalling $1,003,335, between 1 March 2009 and 11 July 2012, which Mr Wright attributes to his remuneration and expenses. I have deducted from this category item 898 ($50,000 on 21 March 2011), it having been dealt with under the Etres Resources category, above.
2. Mr Wright has not produced any invoice for his fees. He never sent Mrs Torlonia an invoice. He said "That was not the relationship we had"; rather, according to him, the relationship was such that he was trusted to take a reasonable sum for his fees and expenses. Mrs Torlonia readily accepted that Mr Wright was entitled to reasonable remuneration for work done, and that she had from time to time inquired as to whether he was being adequately remunerated, and in the principal judgment, I accepted that he was authorised to draw reasonable remuneration and expenses. [6] But Mrs Torlonia was never told how much he was taking.
3. As mentioned in the principal judgment, between 2005 and 2008, Mr Wright drew, for remuneration and reimbursements, a total of $329,017, or on average about $82,250 per annum over the four-year period. [7] Then, on 19 February 2009, Mr Wright sent Mrs Torlonia an email: [8] Fees The need for me as an adviser has greatly reduced and I have been unable to achieve a positive outcome, in my opinion, at the Olgiata (although I do think I was close when we had a written agreement with Georgio and an agreement with Cora and Golly). Accordingly I suggest I charge you for the preparation of any returns and any costs that I incur. These will be invoiced to you and sent to you for payment. If there is an intended transaction that requires time, say a property acquisition, then I will charge you on an hourly rate, currently $330 per hour. I don't intend charging you for the time spent during each week for doing simplistic tasks, nor for the act of being the trustee, unless the activities change in nature.
4. Although Mr Wright endeavoured to explain the 19 February 2009 email as a proposal that arose in circumstances where Mrs Torlonia was proposing to engage an accountant/bookkeeper, which did not eventuate, there is nothing to indicate that any other quote was ever provided, let alone accepted. In the first hearing, while he claimed to have told Mrs Torlonia later that he changed his mind, he could not recall anything about that alleged conversation. In the second hearing, he said that he could not recall telling Mrs Torlonia that his hourly rate would increase when she did not engage a permanent secretary at Hardwicke Stud, or help in Italy. Nor is there any sensible reason why that would result in a change in hourly rate, as opposed to time spent. This is now of limited relevance, because ultimately Mr Wright restricted his claim to a rate of $330 per hour, although at an earlier stage [9] he had claimed $400 per hour.
5. The email of 19 February 2009 is thus the best available evidence of the basis on which Mr Wright was entitled to remuneration from 2009 onwards. One aspect of this, which was referred to in the principal judgment, is that he was not entitled to remuneration for acting as a director of Leccino, and consistently with this, the financial statements for Leccino for 2009, prepared by Mr Wright, contained statements to the effect that no director's remuneration was payable. [10]
6. Yet while the impression conveyed by the 19 February 2009 email was that Mr Wright's remuneration would be significantly reduced, between 2010 and 2012, he drew a total of $932,475, an average of $310,000 per annum over a three-year period - nearly quadruple the rate at which he had drawn remuneration before 2009.
7. This included very large amounts, including $250,000 on 6 April 2010, $200,000 in July 2010 and $190,000 in August 2010, which he used to discharge liabilities associated with renovations of his home in Orange, which were transacted through accounts to which Mrs Torlonia did not have access. He said that in 2010 and 2011 he took money in respect of the 5% of the Wambo royalty that he claimed had been assigned to him, totalling about $170,000 in 2010 and $20,000 in 2011, and that the balance represented advances, against future (as yet unearnt) fees. He said that Mrs Torlonia was aware that he had had difficulties with the renovation of his home, but when pressed conceded that she never said "You can borrow my money and use it to renovate your home".
8. Even if he were entitled to 5% of the royalty, it is not apparent how such an entitlement in respect of 2011 royalty would support a payment to him in 2010. But in the principal judgment, I rejected Mr Wright's claim that in or about 2003 or 2004, in recognition of the work performed by him in connection with the potential sale of the Wambo Royalties income stream, Mrs Torlonia executed an assignment to him of 5% of her entitlement to the royalties - the so-called "Wambo Memorandum", of which he said that he had retained a copy but which he could no longer find. Although Mr Wright produced an invoice dated 30 June 2008 for 5% of the royalty which accrued on 1 July 2008, in the absence of evidence that it was paid, I was unconvinced of its contemporaneity: as I then said, why it would have been issued at the time, but not paid, was not the subject of any intelligible explanation. In the absence of production of the Wambo Memorandum by Mr Wright, I preferred Mrs Torlonia's denial of any such agreement. [11] Nothing has been adduced subsequently to affect those conclusions.
9. Even accepting that Mr Wright was, as he says, trusted to take a reasonable sum for his fees and expenses, the drawing of $640,000 as advances against future as yet unearnt fees, to fund his home renovations, could not conceivably be so characterised.
10. In his affidavit of 13 March 2017, Mr Wright claims to have been entitled to remuneration at the rate of $330 per hour for not less than ten hours per week, on average, spent on Leccino business (which would amount to $165,000 per year) for the period from 2009 to 2014; and in addition, he claims to have incurred expenses of approximately $25,000 per year ($15,000 on travel, $4,000 telephone facsimile and internet, $3,000 printing, postage and stationery, and $3,000 miscellaneous). He deposed: I rendered fees through my consulting companies which from 2009 to 2011 was Atlas Equities Pty Limited and from then Etruscan Capital Pty Limited. I drew fees and expenses and advances against those fees from time to time. In terms of fees paid to my companies from 2009 to 2014 there has been approximately $200,000 per year paid over the five years. After deducting GST, $25,000 in disbursements and approximately $7,000 in direct costs, this amounts to 10 hours a week for 50 weeks per year at $300 per hour. The plaintiff was fully aware that fees and costs were being charged for the considerable amount of work that I was doing. I either paid an advance against an invoice or paid a particular invoice depending on the circumstances.
11. First, it is to be noted that, as was concluded in the principal judgment, Mr Wright was paid for his services up to the end of 2009, [12] and resigned on 19 February 2014; accordingly the period in question comprises the four calendar years 2010, 2011, 2012 and 2013, not five as suggested in that passage.
12. Secondly, as to remuneration, Mr Wright has no memoranda, diary notes or times sheets recording work done. Although he claimed to have rendered invoices and to have retained copies in his office, none were produced that related to the accounting period (and the only two which were produced, at the first hearing, relating to the earlier period, did not correspond with any payment made, and I was unpersuaded of their contemporaneity). In his affidavit of 13 March 2017 he claimed to have spent 10 hours on average a week on Leccino business. In cross-examination, he suggested that in 2010 and 2011 he spent a couple of days per week on Leccino, reducing to about 4 hours in 2012-2013. However, at an earlier stage, [13] he had claimed (for the period between 2003 and 2014) 2.5 hours per week acting as a director of Leccino, and another 2.5 hours per week advising Mrs Torlonia (although he also claimed a further three weeks per year for "additional advisory services"). I have already held that he was not entitled to remuneration for acting as a director, and on the basis of the February 2009 email - which is consistent with Mrs Torlonia's evidence, referred to below, that while Mr Wright did a considerable amount of work before 2009 it was significantly less afterwards - it would be expected that average time spent on advisory work in the post-2009 period would be below the average for the entire 2003-2014 period.
13. Mrs Torlonia said that while Mr Wright had done "quite a lot of work" prior to 2008, after 2009 there was "very little to be done". While he claimed to have worked on the "monetization of the Wambo royalty", she said that this was not so from 2009, as from 2009 there was no talk of selling the Wambo royalty. Similarly, she agreed that prior to 2009 they had discussed potential property investments, but not much after 2009, when "he became harder and harder to get hold of". She accepted that he would have spent a couple of days on Hardwick Stud, and prepared a couple of documents for Brendan Abbey, but said that she would be amazed if he spent two days a week on Leccino. Ultimately, she conceded that he might have spent two hours a week, on on-line banking transactions and emails.
14. Bearing in mind that he was not entitled to remuneration as a director, to his earlier claim for 2.5 hours per week (from which it can be inferred that from 2009 onwards he would have spent less than 2 hours per week) on other Leccino work, and to the February 2009 email, Mr Wright has not persuaded me that during the period from 2009 onwards he spent on average more than the two hours per week remunerable time on Leccino that Mrs Torlonia conceded, save that I am prepared to accept that he spent additional time on the following particular matters, for which he identified specific payments: 1. Item 154 - $2,200 (Torlonia Properties); 2. Item 155 - $2,200 (Torlonia Properties); 3. Item 157 - $3,300 (Torlonia Services); 4. Item 192 - $2,750 (Gladswood Gardens); 5. Item 439 - $11,000 (Hardwick Stud); and 6. Item 447 - $15,000 (Hardwick Stud).
15. These total $36,450. In addition to those specific items, he should also be allowed (for 2010, 2011, 2012 and 2013 - as he was paid up to the end of 2009), the two hours per week that Mrs Torlonia conceded for general administrative and accountancy work. Two hours per week at $330 per hour for 50 weeks a year for 4 years is $132,000.
16. Thirdly, as to disbursements, Mr Wright says that his consulting company incurred expenses such as travel, communication charges, printing, postage and stationery, which he estimates to amount to at least $25,000 per year comprising $15,000 in travel (including flights from Sydney to Europe, flights within Europe, travel between Orange, Yass, Sydney and Wambo, motor vehicle costs, accommodation and subsistence; $4,000 in telephone, facsimile and internet costs in Europe and Australia; $3,000 in printing, postage and stationery; and $3,000 miscellaneous).
17. Mr Wright says that he spent time each year in Italy meeting Mrs Torlonia and Mr McDonald, sometimes multiple visits in a year, and also visits to Hardwicke Stud at Yass, Sydney, and Wambo in the Hunter Valley. Mr Wright says that all his travelling expenses were paid for out of his personal entities, but he produced no receipts to substantiate his expenses.
18. He claimed to have travelled to Europe specifically to visit Mrs Torlonia in Rome. But if these were business trips properly chargeable to Mrs Torlonia, why they were not claimed and invoiced promptly to Leccino, if not to Mrs Torlonia, is not apparent. Mrs Torlonia said that she never asked him to come to Italy for business meetings with her, and the correspondence in evidence tends to support her position: I detect in it no request or expectation on her part that he would come to Italy on her account, though he at least once proposed to come to deal with Mr McDonald. I do not accept that seeing Mrs Torlonia in a professional role was the sole, or even dominant, purpose of these trips. He never told Mrs Torlonia that she was paying for his trips to Europe. When asked whether she agreed to his taking fees and expenses for international trips, he answered "She knew it was international travel because I travelled to Italy", which is all the more revealing by its evasion of a direct answer.
19. The evidence does not reveal the frequency of trips from Orange (where Mr Wright lived) to Yass, Sydney or the Hunter Valley, nor the costs associated with them. Not without misgivings, and in circumstances where it would be open to disallow those claims completely for want of satisfactory evidence, but bearing in mind the dictates of UCPR r 46.8 (which provides that in taking an account under a judgment, all just allowances must be made), I nonetheless propose to allow $1000 per annum for such travel, $1200 per annum (being $100 per month) for telephone etc expenses, and $800 per annum for miscellaneous expenses - a total of $3,000 per annum, or $12,000 for the four year period.
20. Thus in respect of payments to himself and his entities, Mr Wright has justified general remuneration of $132,000, specific remuneration of $36,450, and expenses of $12,000 - a total of $180,450, which I allow. Otherwise this category of falsifications is upheld, to the extent of $822,885.

Conclusion

1. My conclusions may be summarised as follows:
2. Mr Wright has not justified the payments to Etres, and the falsifications in this category, amounting to $1,066,000, are upheld.
3. Save for item 613 - the payment of $2,620 for Mr McDonald's grave, which Mrs Torlonia conceded was authorised - Mr Wright has failed to discharge his burden of showing that payments to or for Mr McDonald in excess of the agreed $250,000 loan were authorised, and the falsifications in this category, amounting to $185,239.49, are upheld.
4. In respect of payments to himself and his entities, Mr Wright has justified general remuneration of $132,000, specific remuneration of $36,450, and expenses of $12,000 - a total of $180,450. Otherwise this category of falsifications is upheld, to the extent of $822,885.
5. In the absence of any surcharges, the receipts side of the ledger requires no adjustment. However, in order to ascertain the amount for which Mr Wright is liable and for which judgment should be given, it is necessary to add the total receipts to the opening balance of $4,232,225, [14] and from the total deduct the expenditure, less the falsifications that have been upheld. The manner in which the accounts have been prepared does not facilitate that course, and it will be necessary for that to be addressed following delivery of this judgment. It will also be necessary to consider any question of interest; and perhaps also consequential relief, at least in respect of those moneys that can be traced into Mr Wright's Orange property.
6. The Court directs that the plaintiff bring in short minutes to give effect to this judgment, on a date to be fixed.

Endnotes

1. Torlonia v Wright [2016] NSWSC 1139, especially at [60]-[63].
2. See J A Watson, The Duty to Account (2016) at 63, citing Ex parte Bax (1751) 2 Ves Sen 388 (28 ER 248).
3. [2007] NSWSC 619 at [10]-[12].
4. Torlonia v Wright [2016] NSWSC 1139 at [50].
5. Although Mrs Torlonia was uncertain that the version in evidence was identical to what she had signed, she thought that it was not much different; no other version was produced, and no one suggested that any other version was materially different.
6. Torlonia v Wright [2016] NSWSC 1139 at [34].
7. Torlonia v Wright [2016] NSWSC 1139 at [35].
8. Torlonia v Wright [2016] NSWSC 1139 at [36].
9. In his verified defence of 14 September 2015, as elaborated in his affidavit of 23 October 2015.
10. Torlonia v Wright [2016] NSWSC 1139 at [38], [42].
11. Torlonia v Wright [2016] NSWSC 1139 at [46].
12. Torlonia v Wright [2016] NSWSC 1139 at [39]-[40].
13. In his verified defence of 14 September 2015, as elaborated in his affidavit of 23 October 2015.
14. Torlonia v Wright [2016] NSWSC 1139 at [55], [63]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 July 2017