Abrugiato v Hans Peter Hansen as Executor of the Estate of SEBASTIANA Abrugiato
[2012] WASC 362
•5 OCTOBER 2012
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: ABRUGIATO -v- HANS PETER HANSEN AS EXECUTOR OF THE ESTATE OF SEBASTIANA ABRUGIATO [2012] WASC 362
CORAM: CORBOY J
HEARD: 2-4, 7-9 NOVEMBER 2011 & 24 SEPTEMBER 2012
DELIVERED : 5 OCTOBER 2012
FILE NO/S: CIV 1001 of 2011
BETWEEN: ROBERTO ABRUGIATO
First Plaintiff
LUCIANA SANTACATERINA
Second PlaintiffAND
HANS PETER HANSEN AS EXECUTOR OF THE ESTATE OF SEBASTIANA ABRUGIATO
DAVID MACDONALD JOHNSTON AS EXECUTOR OF THE ESTATE OF SEBASTIANA ABRUGIATO
First DefendantsMIRELLA EDIGARDA KEUTZER
MARIA VIVIANA MURRAY
MORENA LISA ABRUGIATO
Second DefendantsABRUGIATO PTY LTD
Third DefendantFRANKNELLY NOMINEES PTY LTD AS TRUSTEE FOR THE F & S ABRUGIATO FAMILY TRUST
Fourth DefendantFRANKNELLY NOMINEES PTY LTD AS TRUSTEE FOR THE ROMA FUND OF THE F & S ABRUGIATO FAMILY TRUST
Fifth Defendant
FILE NO/S :CIV 1032 of 2011
MATTER :The Estate of SEBASTIANA ABRUGIATO late of 6 Hillside Road, East Fremantle in the State of Western Australia deceased Probate No 3287/08
BETWEEN :HANS PETER HANSEN AS EXECUTOR AND TRUSTEE OF THE ESTATE OF SEBASTIANA ABRUGIATO
First Plaintiff
DAVID MACDONALD JOHNSTON AS EXECUTOR AND TRUSTEE OF SEBASTIANA ABRUGIATO
Second PlaintiffAND
ROBERTO ABRUGIATO
First DefendantLUCIANA SANTACATERINA
Second DefendantMIRELLA EDIGARDA KEUTZER
Third DefendantMARIA VIVIANA MURRAY
Fourth DefendantMORENA LISA ABRUGIATO
Fifth DefendantFRANKNELLY NOMINEES PTY LTD
Sixth DefendantABRUZZI PTY LTD
Seventh DefendantORTANA PTY LTD
Eighth DefendantROBERTO ABRUGIATO AS TRUSTEE FOR THE ROBERTO ABRUGIATO FUND OF THE F & S ABRUGIATO FAMILY TRUST
Ninth DefendantLUCIANA SANTACATERINA AS TRUSTEE FOR THE LUCIANA SANTACATERINA FUND OF THE F & S ABRUGIATO FAMILY TRUST
Tenth DefendantFRANKNELLY NOMINEES PTY LTD AS TRUSTEE FOR THE ROMA FUND OF THE F & S ABRUGIATO FAMILY TRUST
Eleventh Defendant
Catchwords:
Trusts - Construction of deed creating separate trust funds - Whether liabilities of trust to be split equally between children of appointor - Whether mistake in expression of the appointor's objective intentions - Whether any mistake capable of being cured in construing the deed
Trusts - Fraud on power of appointment - Whether power of appointment required liabilities of trustee to be allocated equally between trust funds to be created - Whether appointor failed to have regard to or failed to take into account relevant considerations - Principles in Re Hastings-Bass and Pitt v Holt
Trusts - Whether trustee entitled to be indemnified out of separate trust funds on a proper construction of trust deed
Equity - Rectification - Whether deed creating separate trusts failed to record intentions of appointor - Whether intentions of a director of trustee company, who was a beneficiary of the trust, relevant - Turns on own facts
Equity - Estoppel - Whether beneficiaries estopped from denying that appointor intended to split liabilities of trusts equally between them - Turns on own facts
Equity - Declarations - Whether proper contradictor whether party neither consents to nor opposes declaratory relief - Whether there was a dispute to be determined by a declaration on the effect resolutions made by the governing director of a company of the articles of association
Corporations - Dividends - Whether resolutions for declaring dividends made on the dates stated in company minutes - Whether resolutions and declarations effective
Legislation:
Nil
Result:
Declarations to be made that the liabilities of the F & S Abrugiato Family Trust are to be allocated according to the schedule to the Deed of Appointment of Separate Trustees; that resolutions by the governing director of Abrugiato Pty Ltd purportedly declaring dividends were ineffective; that Abruzzi Pty Ltd and Ortana Pty Ltd are not liable to Franknelly Pty Ltd for liabilities incurred by Franknelly as trustee of the F & S Abrugiato Family Trust and that Mrs Abrugiato was empowered by the trust deed for the F & S Abrugiato Family Trust to make the Deed of Separation according to its terms and she did not abuse the power conferred by the trust deed
Category: B
Representation:
CIV 1001 of 2011
Counsel:
First Plaintiff : Mr P A Tottle & Ms E McCloskey
Second Plaintiff : Mr P A Tottle & Ms E McCloskey
First Defendants : Mr A J Goldfinch
Second Defendants : Mr L A Tsaknis
Third Defendant : No appearance
Fourth Defendant : Mr L A Tsaknis
Fifth Defendant : Mr L A Tsaknis
Solicitors:
First Plaintiff : Tottle Partners
Second Plaintiff : Tottle Partners
First Defendants : Stables Scott
Second Defendants : Jackson McDonald
Third Defendant : No appearance
Fourth Defendant : Jackson McDonald
Fifth Defendant : Jackson McDonald
CIV 1032 of 2011
Counsel:
First Plaintiff : Mr A J Goldfinch
Second Plaintiff : Mr A J Goldfinch
First Defendant : Mr P A Tottle & Ms E McCloskey
Second Defendant : Mr P A Tottle & Ms E McCloskey
Third Defendant : Mr L A Tsaknis
Fourth Defendant : Mr L A Tsaknis
Fifth Defendant : Mr L A Tsaknis
Sixth Defendant : Mr L A Tsaknis
Seventh Defendant : No appearance
Eighth Defendant : No appearance
Ninth Defendant : Mr P A Tottle & Ms E McCloskey
Tenth Defendant : Mr P A Tottle & Ms E McCloskey
Eleventh Defendant : Mr L A Tsaknis
Solicitors:
First Plaintiff : Stables Scott
Second Plaintiff : Stables Scott
First Defendant : Tottle Partners
Second Defendant : Tottle Partners
Third Defendant : Jackson McDonald
Fourth Defendant : Jackson McDonald
Fifth Defendant : Jackson McDonald
Sixth Defendant : Jackson McDonald
Seventh Defendant : No appearance
Eighth Defendant : No appearance
Ninth Defendant : Tottle Partners
Tenth Defendant : Tottle Partners
Eleventh Defendant : Jackson McDonald
Case(s) referred to in judgment(s):
Australian Competition and Consumer Commission v MSY Technology Pty Ltd [2012] FCA FC 56
Breadner v Granville‑Grossman [2001] Ch 523
Chianti Pty Ltd v Leume Pty Ltd [2007] WASCA 270; 55 WAR 488
Cloutte v Storey [1911] 1 Ch 18
Codelfa Constructions Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; 149 CLR 337
Eggins v Robinson [2000] NSWCA 61
Fitzgerald v Masters (1956) 95 CLR 420
IMF (Australia) Ltd v Sons of Gwalia Ltd (Administrator appointed) (2004) FCA 1390; 211 ALR 231
In re Hastings‑Bass (decd) [1975] Ch 25
Investors' Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; 1 All ER 98
Mander Pty Ltd v Clements [2005] WASCA 67; 30 WAR 46
McCourt v Cranston [2012] WASCA 60
Nolan v Nolan [2003] VSC 121; 10 VR 626
Pacific Carriers Ltd v BNP Paribas [2004] HCA [35]; 218 CLR 451
Pitt v Holt; Futter v Futter [2011] EWCA Civ 197; [2012] Ch 132
Rawack v Spicer [2002] NSWSC 849
RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385
Saraceni v Mentha [No 2] [2012] WASC 336
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA [52]; 219 CLR 165
Vatcher v Paull [1915] AC 372
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1
Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522
CORBOY J:
Introduction
The late Mr and Mrs Abrugiato operated a well-known restaurant in Fremantle. The restaurant business was conducted through the F & S Abrugiato Family Trust (the Family Trust), the trustee of which was Franknelly Nominees Pty Ltd (Franknelly). Mr and Mrs Abrugiato were also the directors of, and shareholders in, Abrugiato Pty Ltd (Abrugiato).
Mr Abrugiato died in 2000. Mrs Abrugiato assumed control of the Family Trust and Abrugiato on his death. By 2005, the Family Trust, Abrugiato and Mrs Abrugiato held a number of properties in and around Fremantle. Mrs Abrugiato also owned a property in Italy.
Mr and Mrs Abrugiato had five children ‑ Dr Abrugiato, Ms Santacaterina, Ms Keutzer, Ms Abrugiato and Ms Murray. In late 2005, Mrs Abrugiato sought advice from RSM Bird Cameron (Bird Cameron) on estate planning and in particular, about arrangements for distributing the various properties under her control among her children. A 'succession plan' was prepared by Bird Cameron (exhibit 10). The plan contained recommendations on how effect could be given to Mrs Abrugiato's wishes for the distribution of her estate among her children. Two important features of the succession plan involved 'trust splitting' (the creation of separate trust funds within the Family Trust) and a 'dividend payment plan' (a proposal for eliminating over time a liability of Franknelly, as trustee of the Family Trust, to Abrugiato and Mr and Mrs Abrugiato and for dealing with a corresponding asset in Abrugiato).
Mrs Abrugiato died in June 2008. Mr Hansen and Mr Johnston (the executors) were appointed executors of her estate. They are directors of Bird Cameron.
These proceedings concern various disputes over the effect of steps taken to implement the succession plan and in particular, to create separate trust funds within the Family Trust and to deal with the liabilities that had been incurred by Franknelly as trustee of the trust. The disputes reflected a split among Mrs Abrugiato's children that had developed prior to her death and which formed part of the context within which the succession plan was devised. The split was between on one side, Dr Abrugiato and Ms Santacaterina (the plaintiffs) and on the other side, Ms Keutzer, Ms Abrugiato and Ms Murray (the second defendants).
The issues to be determined in these proceedings focussed primarily on the meaning and effect of a deed entitled, 'The F & S Abrugiato Family Trust Deed of Appointment of Separate Trustees', made on 13 June 2007 between Mrs Abrugiato, Franknelly, Abruzzi Pty Ltd and Ortana Pty Ltd (the Deed of Separation) (exhibit 6). The deed gave effect to that part of the succession plan that involved splitting the trust fund of the Family Trust (the Trust Fund) into separate funds (referred to as the Roberto Abrugiato fund, the Luciana Santacaterina fund and the Roma fund). Among other things, it imposed an obligation on the trustees appointed to each trust fund to satisfy particular liabilities owed by Franknelly. (The liabilities were referred to in the proceedings as the liabilities of the Family Trust; that reflected the way in which they were described by the witnesses and in many of the relevant documents and it will be convenient to generally refer to the liabilities in that way.)
The plaintiffs and the second and fourth defendants (together, the defendants) disputed the proper construction of those provisions of the Deed of Separation concerning the allocation of the liabilities of the Family Trust between the different funds. Further, the fourth defendant (with the concurrence of the second defendants) sought rectification of the deed if it was found that it was to be construed as the plaintiffs contended. The defendants alleged that the deed failed, on the plaintiffs' construction, to record and give effect to Mrs Abrugiato's specific intentions on how the liabilities of the Family Trust were to be allocated between the separate trust funds that had been created.
Another issue to be determined concerned the effect of certain resolutions made by Mrs Abrugiato, as the governing director of Abrugiato, purporting to declare dividends to be paid to her by the company. The plaintiffs sought declarations that the resolutions were invalid according to the articles of association of Abrugiato. The defendants did not consent to or oppose the declaratory relief claimed. That raised a further issue over whether there was a proper contradictor to the claim.
The remaining significant issue to be determined concerned the right of Franknelly to be indemnified for liabilities that it had incurred to Abrugiato and Mr and Mrs Abrugiato (liabilities that were owed to Mrs Abrugiato following the death of Mr Abrugiato). The defendants contended that Franknelly had a right to be indemnified out of, and held equitable security over, each of the trust funds created by the Deed of Separation. The plaintiffs denied that Franknelly had any right to be indemnified out of the Roberto Abrugiato and the Luciana Santacaterina funds.
The plaintiffs commenced proceedings (CIV 1001 of 2011) seeking declarations and consequential orders concerning their disputes with the defendants. Those proceedings were commenced by writ indorsed with a statement of claim. The executors subsequently commenced proceedings by originating summons (CIV 1032 of 2011) seeking directions in relation to the administration of Mrs Abrugiato's estate. The proceedings were consolidated and directions made requiring the parties to file statements of facts, issues and contentions. That assisted in identifying and settling a list of issues to be determined in the consolidated proceedings. It was directed that many but not all of those issues should be tried as separate issues. The list of preliminary issues is annexed to the reasons.
The fourth defendant was directed to separately plead its claim for rectification of the Deed of Separation. Consequently, there were two statements of claim in the consolidated proceedings. I will refer to the fourth defendant's pleading as the rectification statement of claim.
Abrugiato was separately represented in the proceedings but did not take an active part. It indicated that it would abide by whatever decisions were made by the court. Similarly, the executors informed the court that they did not wish to be heard on all of the issues that were directed to be heard as preliminary issues. They were given leave to participate in the trial to whatever extent that they considered appropriate to their appointment and the requirement for further directions in the administration of the estate.
The fifth defendant was controlled by the second defendants. It appeared by the same solicitors as the second and fourth defendants. However, the court documents filed for the trial referred only to submissions and allegations made by the second and fourth defendants.
The Family Trust
The Family Trust was created by a deed of settlement (the Trust Deed) made between Salvatore Caniglia and Franknelly on 11 August 1975 (exhibit 1). Mr Abrugiato was the guardian and appointor of the trust during his lifetime. Mrs Abrugiato became the guardian and appointor on Mr Abrugiato's death.
The general beneficiaries of the trust included Mr and Mrs Abrugiato and any corporation in which they held at least one share. Accordingly, Abrugiato was a general beneficiary of the Family Trust. Mr and Mrs Abrugiato's children were specified beneficiaries.
The term 'Trust Fund' was defined by the Trust Deed to mean the sum settled on the trust together with 'all moneys investments and property paid or transferred to and accepted by the Trustees as additions to the Trust Fund the accumulations of income hereinafter directed or empowered to be made all accretions and additions to the Trust Fund from whatsoever source and the investments and property from time to time representing the said money investments property accumulations accretions and additions or any part or parts thereof respectively' (cl 1).
The trust was a discretionary trust. Clause 4 of the Trust Deed conferred powers on the trustee in respect of the accumulation and distribution of trust income. In summary:
(a)In any accounting period, the trustee could determine whether to (cl 4(a)):
(i)pay, apply or set aside all or any part of the trust income earned by the trust during that period for any of the general beneficiaries;
(ii)accumulate the income or any part of the income;
(iii)apply or set aside the income or any part of the income for such charitable purposes as the trustee might think fit.
(b)A determination to pay, apply or set aside any part of the trust income for the benefit of any beneficiary could be made by placing any amount to the credit of the beneficiary in the books of the trust (other means of paying a benefit were also permitted) (cl 4(b)(iii)).
(c)Any income that the trustee accumulated was to be dealt with as an accretion to the capital of the trust fund (cl 4(c)).
(d)Any amount set aside for any beneficiary was not to form part of the Trust Fund but upon being set aside would be held by the trustee as a separate trust on trust for the beneficiary absolutely with the trustee to have power, pending payment of the amount concerned to the beneficiary, to invest or apply or deal with the amount according to the powers generally conferred on the trustee to deal with the Trust Fund (cl 4(e)).
The Trust Deed was amended by a deed of variation made on 13 June 2007 (exhibit 5) to add a new clause (cl 5A) that permitted the trustee, with the consent of the guardian, to make a declaration that, at a time nominated in the declaration, the net income or capital of the Trust Fund or the income arising from the Trust Fund or some part of the income or capital 'may only be, or may not be, paid applied or set aside for or between such one or more of the Beneficiaries specified in the declaration'. Supplementary powers were conferred on the trustee if it made a declaration.
Clause 16 of the Trust Deed provided that the appointor was entitled by instrument in writing at any time to appoint additional trustees or new trustees in place of any trustee who resigned. The clause was amended by the deed of variation made on 13 June 2007 to permit the appointor to appoint a separate trustee for any part of the trust fund (the relevant clause of the Trust Deed as amended was cl 16(aa)(iv)). Clause 16A provided that if the appointor exercised the power contained in cl 16(aa)(iv), a separate trustee was only entitled to be indemnified out of that part of the Trust Fund held by the separate trustee in respect of liabilities incurred after the date of its appointment and it had no right of contribution or indemnity from any other separate trustee.
The deed of variation also added a new clause (cl 16B) that also provided that if the appointor exercised the power under cl 16(aa)(iv), the trustee was required, in accordance with any directions that might be given by the appointor, to divide the Trust Fund into the parts for which separate trustees had been appointed and to prepare separate accounts for each part made up to the date of the division.
Mrs Abrugiato was a director of Franknelly. Each of the second defendants was appointed directors of the company on 20 January 2006 (exhibit 80).
Abrugiato
Abrugiato was incorporated on 24 December 1965. The articles of association of Abrugiato adopted the regulations contained in table A in the fourth schedule to the Companies Act 1961 (WA) with certain amendments (exhibit 9). The articles provided for at least three classes of shares:
(a)one class 'A' share issued to Mr Abrugiato and conferring on him governing director rights as contained in the company's constitution during his lifetime;
(b)one class 'B' share issued to Mrs Abrugiato and conferring on her governing director rights to take effect if she survived Mr Abrugiato;
(c)48,000 class 'C' shares.
Article 13 provided that the governing director could:
(a)at any time appoint any person a director of Abrugiato or remove from office any director;
(b)exercise all powers, authorities and discretions conferred by the articles on the directors generally;
(c)exercise three times the number of all votes capable of being cast on a resolution put to the vote at a meeting of Abrugiato.
Article 14 provided that so long as either the class 'A' or class 'B' share with the rights of governing director attached were held by any person then the company could declare dividends of varying amounts on such classes of shares as it might determine from time to time. Articles 98 to 105 governed the declaration and payment of dividends. Article 98 provided that the company in general meeting could declare dividends but no dividend was to exceed the amount recommended by the directors. Article 99 allowed the directors to pay interim dividends where that appeared to be justified.
Mrs Abrugiato was the governing director of Abrugiato following the death of her husband. The second defendants were appointed directors of the company on 20 January 2006 (exhibits 79 and 81).
The assets and liabilities of the Family Trust, Abrugiato and Mrs Abrugiato
The succession plan balance sheet
The succession plan was prepared by Bird Cameron in mid‑2006. It contained a summary of Mrs Abrugiato's net assets at market value according to the instructions that she had been given:
Mrs Abrugiato
$Total
$Franknelly Nominees Pty Ltd
2
2
Abrugiato Pty Ltd
114
114
The F & S Abrugiato Family Trust
7,014,568
7,014,568
Real Estate - Australian
3,020,000
3,020,000
Real Estate - Italian
200,000
200,000
Life Insurance/Allocated Pensions
634,304
634,304
Total
10,868,988
10,868,988
Liabilities
Net Total
10,868,988
10,868,988
The real estate
The properties held by the Family Trust, Abrugiato and Mrs Abrugiato were:
2 Tuckfield Street
Mrs Abrugiato
4 Tuckfield Street
Mrs Abrugiato
7 High Street
Abrugiato
6 Stockdale Road
Family Trust
16 Cliff Street
Family Trust
41 Wray Avenue
Family Trust
9 High Street
Family Trust
6 Cliff Street
Family Trust
6 Hillside Road
Mrs Abrugiato
Italian Property
Mrs Abrugiato
The liabilities of the Family Trust as at 30 June 2006
The balance sheet for the Family Trust (exhibit 96) recorded the following liabilities as at 30 June 2006:
Current liabilities
Beneficiaries' loans
L Santacaterina
(553)
Amanda Elisa Murray
1,286
Alexandra Jane Murray
1,286
Nicholas James Murray
1,286
Stefano Francesco Santacaterina
1,286
Giorgia Ida Santacaterina
1,286
Abrugiato Pty Ltd
1,917,546
F & S Abrugiato
67,836
1,991,259
Creditors - Trade
-
Other Creditors
-
1,991,259
Other
GST Payable
3,526
Total current liabilities
1,994,785
Total liabilities
1,994,785
Undrawn beneficiary entitlements
The succession plan stated that Abrugiato had retained earnings of $2 million and franking credits of $898,767 (exhibit 10, TB 294). Mr Ivanac stated that the source of that information was the balance sheet for Abrugiato for the year ended 30 June 2004 (ts 266; and see the references to the 2004 balance sheet in the schedule annexed to the succession plan that summarised the assets of Abrugiato ‑ TB 325).
The financial statements for Abrugiato for the year ended 30 June 2006 recorded as a non‑current asset an item described as 'undrawn beneficiary entitlement' in an amount of $1,917,546 (exhibits 115 and 120). As can be seen, that amount was equal to the liability to Abrugiato recorded in the accounts for the Family Trust for the same period (and see note 7 to the financial statements for the Family Trust for the year ended 30 June 2006, exhibit 97). The liability was recorded in the accounts of the Family Trust as a current liability incurred as a result of borrowings by the Family Trust.
The undrawn beneficiary entitlement was said by Mr Ivanac to be the same as the retained earnings held by Abrugiato (ts 266). Strictly, that was not correct. Retained earnings formed part of the equity in Abrugiato and the amount retained as at 30 June 2006 was $2,188,429. However, broadly retained earnings were represented by the undrawn beneficiary entitlement (as that comprised nearly all of the company's net assets). Consequently, references in the succession plan to retained earnings were to the asset for which the beneficiary loan from Abrugiato recorded in the accounts of the Family Trust was the corresponding liability.
The succession plan
The succession plan letter and objectives
The succession plan was dated August 2006 and was prepared by Mr Geoffrey Ivanac. It was sent by post to Mrs Abrugiato on 1 September 2006 (witness statement of Geoffrey Alan Ivanac, exhibit 26, par 82). Mr Ivanac was at that time employed by Bird Cameron as a chartered accountant specialising in estate and succession planning.
Mr Ivanac was first introduced to Mrs Abrugiato by Mr Hansen in late 2005. The purpose of the introduction was to enable Mr Ivanac to assist Mrs Abrugiato with succession planning (Ivanac, pars 7 ‑ 9). Mr Ivanac subsequently provided Mrs Abrugiato with an engagement letter and a 'succession plan' letter at a meeting held on or about 10 January 2006 (Ivanac, pars 32 ‑ 37). The succession plan letter (exhibit 75) stated that Mr Ivanac understood Mrs Abrugiato's succession planning objectives to include:
(a)providing for all of her children in a 'fair and equitable manner';
(b)reviewing and 'updating' control of her 'entities' so that they accorded with her succession planning objectives;
(c)restructuring her 'entities' so that her children would receive a 'fair and equitable share' of her estate without 'triggering unnecessary Capital Gains Tax and Stamp Duty' and so that control of the entities would 'flow' to her children without the transfer of control being contested;
(d)reviewing 'inter‑entity loans' and loans between her entities and family members and considering the implications of separating the assets owned by her 'company'.
I accept that Mr Ivanac's letter accurately captured Mrs Abrugiato's estate planning objectives at the time that he was first instructed. The parties did not suggest otherwise.
The succession plan
The succession plan that was subsequently prepared by Mr Ivanac was divided into various sections. Section 2 contained a summary of the recommendations that were made in the plan. The recommendations included that:
(a)Mrs Abrugiato leave her shares in Abrugiato equally between her children;
(b)Abrugiato commence paying out its retained earnings either by a lump sum payment or over a period of five years;
(c)the undrawn entitlements of beneficiaries be paid out by Franknelly either as a lump sum or over a period of five years;
(d)a loan made by the Family Trust to Ms Santacaterina be repaid;
(e)the Family Trust be split into several trusts for each of Mrs Abrugiato's children;
(f)the properties located at 2 Tuckfield Street (where Mrs Abrugiato resided) and 6 Hillside Street be left in equal shares between Mrs Abrugiato's children as tenants in common;
(g)the property located at 4 Tuckfield Street be left in equal shares between the plaintiffs as tenants in common;
(h)Mrs Abrugiato's will document that the plaintiffs were receiving a greater share of her estate assets as the second defendants had received a greater share of Mrs Abrugiato's assets that did not form part of her estate;
(i)Mrs Abrugiato retain control of the Family Trust and Abrugiato for a period of five years at which time her succession plan should be reviewed.
It was implicit in those recommendations that the second defendants would receive the properties that were not identified as properties to be left to the plaintiffs. That was made clear in a schedule attached to the plan that is further described below.
Section 3 of the succession plan was entitled 'you and your family'. It was noted that none of Mrs Abrugiato's children had special needs that had to be addressed in her estate plans.
Section 5 of the succession plan restated Ms Abrugiato's estate planning objectives. The objectives concerning the distribution of Mrs Abrugiato's assets accorded with those stated in the succession plan letter.
The recommendations made by Bird Cameron were more fully explained in s 7 of the succession plan. The section was divided into parts by reference to the holder or source of the assets to be dealt with by the plan: Abrugiato; the Family Trust; allocated pensions paid to Ms Abrugiato; Franknelly; Mrs Abrugiato and Mrs Abrugiato's principal residence.
The plan noted that Abrugiato owned the property situated at 7 High Street (the site of the restaurant business), valued at $1,300,000. The property had been purchased prior to the introduction of capital gains tax (CGT). The company was also a beneficiary of the Family Trust and shares in the company had been issued prior to the introduction of CGT. The company had lent funds to the trust and had significant retained earnings and franking credits.
The primary issues regarding the Family Trust and Franknelly that were identified by the plan concerned the way in which the amount owed by Franknelly to Abrugiato might be repaid and how the retained earnings in Abrugiato could be paid out while minimising the associated tax liability. The trust's financial statements for the year ended 30 June 2005 recorded a substantial interest bearing liability. Note 8 to the accounts described the liability as loans by beneficiaries, including an amount of $1,795,624 owing to Abrugiato (and $297,597 owing to F & S Abrugiato) (see exhibit 65, TB 1082 and following). However, the succession plan referred to the amount owing to Abrugiato as 'unpaid entitlements'. The corresponding asset was referred to in the succession plan as retained earnings in Abrugiato.
The plan noted in relation to the retained earnings that (s 7.1.2):
In the event that you pass away, your children will each own an equal share in the Company. The Company will be owed money by the Trust or any new trusts that are created. This could be the cause of family conflict. Roberto and Luciana for example may demand that the loans from the Trust are repaid so that they can access the retained earnings locked up in the Company.
This may cause assets being required to be sold by the Trust or any new trusts, triggering GST.
It would be better if the Company did not have any loans owed to it by the Trust or any new trusts.
Accordingly, it was recommended that the unpaid entitlements owed by Franknelly to Abrugiato and the retained earnings of Abrugiato be paid out either as a lump sum or across a five year period (s 7.1.4 and s 7.2.4). However, Mrs Abrugiato was also advised that:
(a)There was a difficulty in paying out the retained earnings as a lump sum. Mrs Abrugiato could be liable for additional income tax of $330,000 and it might be necessary for her to sell one of the properties that she intended to leave to her children to meet that liability. Further, CGT would be paid on the sale of that property.
(b)Paying out the retained earnings over a period of five years would enable the tax liability on the earnings to be met from the income that would be received from rental properties and Mrs Abrugiato's allocated pensions.
The plan identified certain advantages from the proposal to pay the retained earnings of Abrugiato to Mrs Abrugiato as dividends. Those advantages included that 'payment of the Company's retained earnings will assist in avoiding any family conflict that may arise in the event that you pass away'; the 'risk of you or your children having debit loans in the Trust [or] the Company will be reduced' and 'the need for a forced sale of assets in the event that you pass away will be reduced' (section 7.1.5).
It was recommended that the Family Trust be split into five trusts, one trust for each of Mrs Abrugiato's children. The allocation of the real estate forming part of the trust property, together with the other properties under Mrs Abrugiato's control, was shown in an annexure to the plan (annexure 3) entitled 'Revised Allocation of Assets':
Property
Vivian
$Mirella
$Morena
$Robert
$Lucy
$2 Tuckfield Street
80,000
80,000
80,000
80,000
80,000
4 Tuckfield Street
210,000
210,000
7 High Street
260,000
260,000
260,000
260,000
260,000
6 Stockdale Road
(Commercial)
1,200,000
1,200,000
1,200,000
16 Cliff Street
220,000
220,000
220,000
41 Wray Avenue
(Residential)
375,000
375,000
9 High Street
1,250,000
1,250,000
6 Cliff Street
(Commercial)
400,000
400,000
400,000
6 Hillside Road
(Home)
440,000
440,000
440,000
440,000
440,000
Italian Property
200,000
TOTAL
2,600,000
2,600,000
2,600,000
2,615,000
2,815,000
The succession plan identified a number of advantages to Mrs Abrugiato from splitting the Family Trust:
(a)splitting the trust would not constitute a disposal of property for CGT purposes;
(b)Mrs Abrugiato would be able to retain control of all of the trusts existing and created until she wished to hand over control to her children;
(c)her children would eventually be able to control their own trusts and attend to their own succession requirements;
(d)it was unlikely that there would be 'adverse' income tax or stamp duty consequences from splitting the trust.
Annexed to the succession plan was a 'wealth appraisal statement' that recorded information relating to the financial position of Abrugiato, the Family Trust and Mrs Abrugiato. The appraisal statement comprised a bundle of schedules prepared by Bird Cameron. So far as was relevant, the schedules stated that:
(a)The net assets of Abrugiato were valued at $3,453,137. The assets comprised the net assets of the company as recorded in its accounts for the year ended 30 June 2004; cash at bank; the market value of real estate (apparently brought to account in Abrugiato's balance sheet at cost, the purchase price in 1973 (see exhibit 115)) and receivables, being loans made to the Family Trust ($1,856,030).
(b)The net assets of the Family Trust were valued at $7,014,568, primarily comprising the market value of real estate and cash.
(c)The liabilities of the Family Trust comprised:
(i)bank overdraft ($1,253)
(ii)loans at call - 'F & S Abrugiato' ($265,611);
(iii)'beneficiary entitlements' - AE Murray, AJ Murray, NJ Murray, SF Santacaterina and GI Santacaterina ($1,286 each);
(iv)'beneficiary entitlements' - Abrugiato ($1,856,030);
(v)trade creditors etc ($56,946).
Mr Ivanac advised, in relation to splitting the Family Trust into separate trusts, that 'the liabilities of the Trust will be apportioned between each of the new trusts' (exhibit 10, s 7.2.3(c), TB 299). The defendants emphasised that statement as an expression of Mrs Abrugiato's intention that the liabilities of the Trust Fund should be allocated equally among the trusts to be created for her children. That assumed that the reference to liabilities in the advice was to all of the liabilities appearing in the balance sheets of Franknelly and the Family Trust. The plaintiffs submitted that the reference to 'liabilities' in s 7.2.3(c) of the plan was only to the trade and other incidental creditors of Franknelly (plaintiffs' closing submissions, par 41(b)). That submission was based on the reference to 'unpaid entitlements' (rather than 'liabilities') throughout the succession plan to describe the amount owed by the Family Trust to Abrugiato.
Other parts of the succession plan did not clarify what was intended by the reference to liabilities in s 7.2.3(c). For example, the statement of assets and liabilities for the Family Trust forming part of the wealth appraisal statement annexed to plan described the trust's liabilities as including loans at call, beneficiary entitlements and trade creditors. Further, the succession plan did not provide a definition for the term 'unpaid entitlements' or explain what was meant by the reference to the possibility of the Family Trust or 'the new trusts' owing money to Abrugiato and it contained a recommendation that 'a program be implemented whereby the Unpaid Entitlements owing to the Company are paid out either as a lump sum or over a period of five years' (s 7.2.4). That recommendation begged the question: why would the liability for 'unpaid entitlements' be allocated between the 'new' trusts if it was to be eliminated either as a lump sum or over time?
Mr Young's opinion
Annexed to the succession plan was an advice provided by Mr Grahame Young of counsel. The advice was contained in a letter was dated 28 March 2006 addressed to Bird Cameron, marked for the attention of Mr Ivanac.
The letter recorded that Mr Young had been advised that Mrs Abrugiato wished for her children to have 'independent control over different properties which are presently owned by the [Family Trust] whilst minimising the impact of stamp duty, capital gains tax, income tax and goods and services tax'. Mr Young advised that it would be possible to create a number of separate funds together comprising either the whole or part of the assets of the Family Trust and for each child to have control as the trustee, or over a corporate trustee, of one of the separate funds. He considered that there were two methods of achieving that result.
The first method involved dividing the trust assets into a number of separate funds, each of which was subject to nominated liabilities, and to appoint separate trustees for the funds. It would be necessary to vary the Trust Deed to allow for the appointment of separate trustees to different parts of the trust property. He referred to that method as trust splitting.
The alternative method for dividing the assets of the Family Trust was to create new trust deeds having the same trusts, terms and conditions but with different trustees. Separate parts of the assets of the Family Trust, subject to nominated liabilities, could then be transferred to the trustees of the new trusts. He referred to that method as trust cloning.
Mr Young advised on the tax consequences of each of the methods and the steps that would be required for their implementation. It was to be inferred that his advice formed the basis for the recommendations contained in the succession plan about splitting the Family Trust into five trusts. The advice extended to the information that he would require to prepare the documents necessary to amend the Trust Deed. The required information included the following: 'you have not advised on the proposed division of assets and liabilities, in particular of the liability of the 2 larger interest bearing loans. I assume that the division will be done to assist in achieving equality if that is what is desired'.
It should be noted that the letter of instruction to Mr Young (dated 9 March 2006 and forming part of exhibit 65; TB 1080) stated that 'Mrs Abrugiato wishes for her children … to have independent control over the different properties that are presently owned by the … Family Trust whilst minimising the impact of Stamp Duty, Capital Gains Tax … Income Tax and Goods and Services Tax'. The letter enclosed a financial statement for the Family Trust for the year ended 30 June 2005 that disclosed 'interest bearing liabilities' of $2,099,097, note 8 to the balance sheet describing those liabilities as 'beneficiaries' loans'. The letter of instruction made no reference to the dividend payment proposal or to any means by which the liabilities of the Family Trust might be eliminated.
Adjustments to the plan
A meeting was held between Mr Ivanac and Mrs Abrugiato, Ms Keutzer, Ms Murray and Ms Abrugiato on 14 September 2006. Mr Ivanac made notes of the meeting (exhibit 59). The notes incorporated an agenda that indicated that the purpose of the meeting was to review the recommendations contained in the succession plan and to obtain Mrs Abrugiato's authority to proceed with implementing the plan. According to Mr Ivanac, Mrs Abrugiato instructed him at the meeting that adjustments were to be made to the allocation of assets discussed in the plan. It was agreed that he would prepare a revised allocation of assets to reflect those instructions (Ivanac, pars 85 ‑ 87).
On 10 October 2006, Mr Ivanac wrote to Mrs Abrugiato enclosing a revised allocation of assets (the 'final asset allocation') (exhibit 60). The asset allocation was as follows:
Property
Vivian
$Mirella
$Morena
$Robert
$Lucy
$2 Tuckfield Street
200,000
200,000
4 Tuckfield Street
210,000
210,000
7 High Street
260,000
260,000
260,000
260,000
260,000
6 Stockdale Road
(commercial)1,200,000
1,200,000
1,200,000
16 Cliff Street
220,000
220,000
220,000
41 Wray Avenue
(residential)250,000
250,000
250,000
9 High Street
1,250,000
1,250,000
6 Cliff Street
(commercial)400,000
400,000
400,000
6 Hillside Road
(home)440,000
440,000
440,000
440,000
440,000
Italian property
100,000
100,000
Total
2,770,000
2,770,000
2,770,000
2,460,000
2,460,000
Mr Ivanac’s letter noted that the final asset allocation indicated that the plaintiffs would each receive $225,971 less than the second defendants. The letter further noted that Mrs Abrugiato had advised during the meeting on 14 September that she proposed to 'even up this inequity' by bequeathing the residue of her estate to the plaintiffs. That comprised Mrs Abrugiato's allocated pensions. Mr Ivanac's letter advised that the residue of her estate was valued at approximately $634,000 as at 30 June 2004 and that it was likely that over time the residue would decrease so that the plaintiffs would receive less than that amount.
A further meeting was held between Mr Ivanac and Mrs Abrugiato, Ms Keutzer, Ms Murray and Ms Abrugiato on 17 November 2006. Again, Mr Ivanac made a note of the meeting (exhibit 61). The note was headed 'Agenda'. It was not clear whether the note also incorporated a record of what occurred at the meeting. I accept that, if it did not, it nevertheless recorded in some detail what Mr Ivanac proposed to discuss with Mrs Abrugiato.
Mr Ivanac also made a contemporaneous entry about the meeting in a running electronic record (known as a 'to do item') that he and others within Bird Cameron maintained in relation to the preparation and implementation of the succession plan for Mrs Abrugiato (exhibit 131).
Mr Ivanac's note and electronic record indicated that the proposed allocation of assets between Mrs Abrugiato's children was again discussed at the meeting. Mrs Abrugiato confirmed that 2 and 4 Tuckfield Street and the Italian property were to be allocated to Dr Abrugiato and Ms Santacaterina. However, she instructed Mr Ivanac that the allocated pensions and the residue of her estate were to be distributed equally between her children. It was also agreed at that meeting that the Family Trust was to be split into three rather than five trusts ‑ one each for Dr Abrugiato and Ms Santacaterina and one for the second defendants.
The meeting on 17 November 2006 was the last meeting at which formulation of the succession plan and the allocation of assets was discussed between Mrs Abrugiato and Mr Ivanac. I accept that the plan was, in effect, approved by Mrs Abrugiato at the meeting; that was apparently common ground between the parties.
The development of the succession plan
Mr Ivanac, Mr Hansen and the second defendants gave evidence of the meetings held with Mrs Abrugiato during 2006 in which her instructions were sought and advice was given about the succession plan. That evidence was directed to establishing the intentions of Mrs Abrugiato in relation to her estate and in particular, to the object and terms of the Deed of Separation. The evidence relating Mrs Abrugiato's intentions is considered later in the reasons. Findings about what occurred during the various meetings between Mrs Abrugiato, Mr Ivanac and Mr Hansen are also made in that context.
Implementing the succession plan
Mr Young's instructions
Mr Ivanac resigned as an employee of Bird Cameron in December 2006. He handed over the day‑to‑day conduct of the succession planning for Mrs Abrugiato to a director of Bird Cameron, Mr David Groves, in or about mid‑December 2006 (Ivanac, pars 98 ‑ 99). Mr Ivanac had been assisted in his practice by a paraprofessional, Ms Haines. She subsequently assisted Mr Groves with the implementation of the succession plan (ts 355 and 382).
Mr Ivanac drafted a letter with further instructions for Mr Young prior to his departure (Ivanac, par 97; exhibit 62). The final version of the letter, dated 7 February 2007, was settled by Mr Groves (exhibit 64). Mr Young was instructed to prepare the documents necessary to split the Family Trust by creating three funds:
(a)the Roma trust fund - the properties at 6 Stockdale Road, 16 Cliff Street, 41 Wray Avenue and 6 Cliff Street were to comprise the trust fund. The trustee of the fund was to be Franknelly.
(b)the Roberto Abrugiato trust fund ‑ a half share in the property at 9 High Street was to form the trust fund. The trustee of the fund was to be Abruzzi Pty Ltd.
(c)the Luciana Santacaterina trust fund ‑ the trust fund was to comprise the other half share in the property at 9 High Street. The trustee of the fund was to be Ortana Pty Ltd.
Mrs Abrugiato was to be the guardian and appointor of each trust fund. Her successors were to be the second defendants for the Roma fund, Dr Abrugiato for the Roberto Abrugiato fund and Ms Santacaterina for the Luciana Santacaterina fund. However, Mrs Abrugiato and Ms Abrugiato were the directors of Abruzzi and Ortana at that time; they remained the directors of companies when the Deed of Separation was made on 13 June 2007 (see exhibits 17 and 18).
The letter to Mr Young concluded with a section headed 'Assets/Liabilities' in which it was stated that 'the assets and liabilities of the [Family Trust] are to be split as shown on the enclosed draft Trial Balance'. Four documents were listed as having been enclosed with the letter, including a 'draft trial balance for the period ended 30 June 2006'. By letter dated 10 September 2008, Mr Young provided Bird Cameron with a copy of their letters of instruction of 9 March 2006 and 7 February 2007 and the documents that had been enclosed with those letters (exhibit 65). The documents provided by Mr Young did not include a draft trial balance for the Family Trust; they did, however, include a balance sheet for the Family Trust as at 30 June 2006 (exhibit 65, TB 1051).
Mr Groves was unable to recall whether the balance sheet for the Family Trust was the 'draft trial balance' enclosed with the letter of instruction to Mr Young (ts 364). However, I am satisfied that the balance sheet was the document included with the letter ‑ it was the only document that approximated the description in the letter that was returned by Mr Young and Mr Groves was provided with a copy of the balance sheet, apparently at his request, shortly prior to settling his letter of instruction to Mr Young (see exhibit 63, email from L Burford to Mr Groves sent on 17 February 2007 and see at ts 360). The parties drew the same inference (ts 290).
The balance sheet for the Family Trust
The balance sheet for the Family Trust for the year ended 30 June 2006 provided to Mr Young recorded that the trust had liabilities of $1,994,785. The liabilities were described as 'beneficiaries' loans'. Amounts of $1,286 each were recorded as owing to AE Murray, AJ Murray, NJ Murray, SF Santacaterina and GI Santacaterina (who I inferred to be the children of Ms Murray and Ms Santacaterina). The balance comprised an amount of $1,917,546 owing to Abrugiato and $67,836 to 'F & S Abrugiato'.
The deeds prepared by Mr Young
Mr Young prepared three documents pursuant to the instructions given by Bird Cameron (exhibit 66):
(a)Deed of Variation to the Trust Deed. The variation deed contained provisions amending the Trust Deed to enable the appointor to appoint separate trustees for any part of the Trust Fund and to divide the Trust Fund into the parts for which separate trustees had been appointed. There were other provisions that gave effect to the intention to permit the Trust Fund to be split.
(b)Deed of Separation by which Franknelly was removed as trustee and separate trustees were appointed for those parts of the Trust Fund that were to be known as the Roberto Abrugiato fund and the Luciana Santacaterina fund.
(c)Deed of Appointment of Successor, Appointors and Guardians by which Mrs Abrugiato, as the sole appointer and guardian of the Family Trust, appointed Dr Abrugiato and Ms Santacaterina as her successors as appointors and guardians for the Roberto Abrugiato fund and the Luciana Santacaterina fund respectively.
Mr Young provided the draft deeds to Bird Cameron by letter dated 16 March 2007 (exhibit 66). Mr Groves subsequently instructed Mr Frampton to prepare the land transfers necessary to give effect to the splitting of the Family Trust and to prepare a will for Mrs Abrugiato (exhibit 67). Mr Frampton was provided with copies of the draft deeds for that purpose.
Mr Groves gave evidence about steps taken by Bird Cameron to review the draft Deed of Separation prepared by Mr Young prior to its execution. It is convenient to first summarise the terms of the deed before returning to that evidence.
The Deed of Separation
Recital C to the Deed of Separation provided that:
The Appointor [Mrs Abrugiato] wishes to exercise the power of appointment for that part of the Trust Fund specified in Item 7.1 of the Schedule (The Roberto Abrugiato Fund [of the Family Trust]) which in the future is to be known by that name, [The Roberto Abrugiato fund], by removing the Trustee as trustee of The Roberto Abrugiato Fund and appointing Roberto's Separate Trustee [Abruzzi] in its place and subject to the assumption by Roberto's Separate Trustee of those debts and liabilities, and of liability for payment of those amounts due to or set aside for beneficiaries of the Trust, in each case as are specified item 7.2 of the Schedule.
Clause 7.2 of the deed gave effect to the matters stated in Recital C. Abruzzi, as trustee of the Roberto Abrugiato fund, covenanted with Franknelly that it assumed liability for payment or satisfaction of those debts and liabilities, and liability for payment for those amounts due to or set aside for the beneficiaries of the Family Trust, that were specified in item 7.2 of the schedule to the Deed (the Schedule). Abruzzi also undertook to indemnify Franknelly from all claims and liability in respect of the liabilities that it had assumed.
Item 7 of the Schedule provided that the assets of the Roberto Abrugiato fund comprised a one‑half share in the land located at 9 High Street and that the fund had no liabilities nor did it owe any amounts to beneficiaries.
Recital D was in the same form as recital C, except that it referred to the Luciana Santacaterina fund, to 'Luciana's Separate Trustee' (Ortana) and to the liabilities specified in item 8.2 of the Schedule. Clause 8.2 was in identical terms to cl 7.2, except for whatever variations were required to refer to Ortana and the Luciana Santacaterina fund.
Item 8 of the Schedule provided that the assets of the Luciana Santacaterina fund also comprised a half‑share of the land located at 9 High Street and an amount of $553, being an amount standing in a beneficiaries loan account in the name of Ms Santacaterina. The liabilities of the fund and the amounts due to beneficiaries comprised $1,286 owing to each of G I and SF Santacaterina.
Recital D to the Deed of Separation stated that the balance of the Trust Fund of the Family Trust was to be known in the future as the Roma fund. No covenants were given on behalf of the fund but item 10 of the Schedule concerned its assets and liabilities. The assets of the fund were identified as being land located at 6 Stockdale Road, 16 Cliff Street, 6 Cliff Street and 41 Wray Avenue and cash at bank of $233,717 and a refundable deposit of $160. Item 10.2 of the Schedule referred to the liabilities of the Roma fund and amounts due to beneficiaries. The following liabilities and amounts due to beneficiaries were identified:
Beneficiaries Entitlements
A E Murray (at 30 June 2006 being $1,286)
A J Murray (at 30 June 2006 being $1,286)
Abrugiato Pty Ltd (at 30 June 2006 being $1,917,546)
F & S Abrugiato (at 30 June 2006 being $67,836)
GST Payable (at 30 June 2006 being $3,526)
The review of the draft deed
The draft Deed of Separation prepared by Mr Young formed part of exhibit 66. The draft was annotated with ticks. Mr Groves stated that the draft deeds were separately checked by Ms Haines and himself after they were received from Mr Young. In particular, Ms Haines reviewed the drafts to confirm that they accorded with the instructions given to Mr Young by Bird Cameron (ts 368). Mr Groves stated that the ticks marked on the draft were likely to have been made by Ms Haines ('Tammy was in the habit of ticking', ts 368). Ticks appeared against the following items in the Schedule: 8.1, 8.2, that part of item 10.1 that referred to cash and cash at bank and refundable deposits and 10.2.
Subsequently, in May 2007 Mr Young made further amendments to the draft deeds to vary the name of each of the trust funds (exhibit 69). It was not clear who initiated the changes, although they appear to have reflected stamp duty concerns held by either Mr Groves or Mr Young (see exhibit 68).
The 13 June 2007 meeting
The Deed of Separation was executed at a meeting held on 13 June 2007 at Mrs Abrugiato's residence. The meeting was convened for the purpose of executing Mrs Abrugiato's will and the deeds that had been drafted by Mr Young. Mrs Abrugiato, Mr Groves, Mr Frampton, Ms Tay (of Norton Rose), Ms Keutzer and her husband and Ms Murray and her husband were present at the meeting according to Mr Groves (witness statement of David Jackson Groves, exhibit 31, par 8). However, Ms Keutzer and Ms Murray could not recall attending the meeting (witness statement of Mirella Edigarda Keutzer, exhibit 55 par 3, par 51; witness statement of Maria Viviana Murray, exhibit 25, par 41). Ms Abrugiato stated that she present at the meeting; she could not recall whether Ms Keutzer was present but she recalled that Ms Murray had not attended (witness statement of Morena Lisa Abrugiato, exhibit 20, par 72). Minutes of a meeting of Franknelly said to have been held that day and prepared by Bird Cameron did not assist in ascertaining who was present as they recorded Ms Keutzer and Ms Murray as being both present at and apologies for the meeting (exhibit 24). However, Ms Tay made a note of the meeting the following day that stated that all of the second defendants were present, along with Mr Keutzer (attachment MAF 4 to Mr Frampton's witness statement).
Mrs Abrugiato was legally blind by this time and I accept that some care was taken by Mr Groves and Mr Frampton to ensure that she understood the contents of the documents to be executed. Mrs Abrugiato's will was read to her verbatim, apart from one clause (witness statement of Michael Alan Frampton, exhibit 57, par 24). Mr Frampton explained the effect of that clause (Frampton, par 24). The other documents executed at the meeting were not read in their entirety to Mrs Abrugiato. Rather, Mr Groves and Mr Frampton explained their contents. They made a statutory declaration following the meeting in which they declared that the purpose and effect of each of the documents executed at the meeting had been explained to Mrs Abrugiato (exhibit 8). They also declared that Mrs Abrugiato confirmed that she understood the purpose of each document prior to its execution.
Mr Groves stated that he read the 'major parts' of the Deed of Separation to Mrs Abrugiato and paraphrased the 'standard' provisions of the deed (Groves, par 15). However, he could not recall reading out the 'specific allocation of the assets and liabilities made by the Deed and do not believe that I did so' (Groves, par 16). Mr Frampton stated that Mr Groves explained the purpose and effect of the deed to Mrs Abrugiato but he could not recall whether the deed was read clause by clause or whether the 'specific distribution detailed in the Deed' was discussed by Mr Groves (Frampton, pars 22 and 23). According to Ms Tay's note of the meeting, 'David … explained the purpose and effect of the documents prepared by Grahame Young as generally facilitating the splitting of funds'.
Ms Abrugiato stated that 'because my mother was legally blind and could not read documents unaided, and she would not sign a document unless it was explained to her, it was the practice of … Bird Cameron's accountants to explain documents to her at meetings of Franknelly and Abrugiato' (Abrugiato, par 86). Ms Abrugiato could not recall her mother and herself being 'taken through' the Deed of Separation 'page by page' but 'I believe the substance of the document was explained to us at the meeting. I have this belief because otherwise it would not have been signed' (Abrugiato, par 87; see also at ts 167). Ms Abrugiato was confident that her mother understood the explanations given at the meeting for the documents to be executed (ts 168).
Ms Abrugiato also stated that (pars 88 ‑ 90):
David Groves said to me and my mother that the Deed of [Separation] document was in accordance with, and facilitated, my mother's wishes and the succession planning process.
My mother and I were told by David Groves that via the succession planning process, debts would be equalised out amongst my mother's children and that there would be no exchange of money, but a paper transaction.
When I signed the Deed of [Separation] on behalf of Ortana and Abruzzi I did so on the understanding and with the intention that the debt owed by the [Family Trust] to Abrugiato … and to my parents … would be borne one-fifth by each of the Roberto Abrugiato Fund and the Luciana Santacaterina Fund and three-fifths by the Roma Fund … Had I believed that not to be the case I would not have signed the Deed on behalf of Ortana and Abruzzi.
In cross‑examination on her understandings at the time of the meeting, Ms Abrugiato accepted that she appreciated that the assets of the Family Trust were being distributed between the three trust funds; that Mr Groves explained at the meeting that this was the effect of the documents; that he explained about 'the debts'; that Mr Groves stated that the debts would 'be equalled out by some other aspect of the estate planning process' (the wording of the question with which Ms Abrugiato agreed); that she understood that the debts would be eliminated and that the debts were 'never going to affect the Roma fund' (counsel's question with which Ms Abrugiato agreed) (ts 168). She subsequently said in cross‑examination that Mr Groves explained at the meeting that the liabilities would be allocated one‑fifth to each of the Roberto Abrugiato and the Luciana Santacaterina funds and three‑fifths to the Roma fund (ts 169) but it became apparent still later in her evidence that Ms Abrugiato had no clear recollection of what was said at the meeting (ts 170 - 171).
The defendants submitted that the effect of the evidence was that 'it did not appear' that the various deeds drafted by Mr Young were separately considered or 'if they were there is nothing to suggest that the deeds were described in any level of detail' and that 'given the level of detail necessary to be descended to, to explain the precise assets and liabilities disposed of, the most reasonable inference was that the document was not explained to [Mrs Abrugiato] or [Ms Abrugiato] in the level of detail required for the distribution of the assets, including the beneficiary entitlements, to be understood as being different from that contemplated' (defendants' closing submissions, pars 120 -121). That submission (apart from the very last aspect) accorded with parts but not all of the available evidence ‑ in particular, Ms Abrugiato's suggestion that the 'debts' were discussed at the meeting which was apparently relied on by her (and the fourth defendant) as a source of her understanding and intentions in respect of the contents of the Deed of Separation for the purpose of the rectification claim.
The defendants' position on what occurred at the meeting was put more forcefully in supplementary submissions. It was contended that the Schedule to the Deed of Separation had not been read or explained to Mrs Abrugiato and that she had not made any enquiries about how the liabilities of the Family Trust were to be allocated prior to signing the deed (supplementary submissions, par 20).
The possibility that the Schedule to the Deed of Separation was read or explained to Mrs Abrugiato cannot be discounted. However, I do not consider that the evidence permits a positive finding to that effect or conversely, a finding that the Schedule was not read or explained or that Mrs Abrugiato made no enquiries about how the liabilities of the Family Trust were to be treated in the deed. I find that the evidence does not establish whether or not the Schedule was read or explained or the allocation of the Family Trust's liabilities was discussed at the meeting.
Mrs Abrugiato's will
Mrs Abrugiato gave by her will (exhibit 122):
(a)her shares in Abrugiato and her interest in 6 Hillside Road equally to her children;
(b)her interest in 2 and 4 Tuckfield Street and her Italian property to Dr Abrugiato and Ms Santacateria;
(c)her shares in Franknelly to the second defendants;
(d)her shares in Abruzzi to Dr Abrugiato;
(e)her shares in Ortana to Ms Santacateria;
(f)the residue of her estate to those of her children who survived her by 30 days.
The effect of those provisions was that by her will, Mrs Abrugiato gave:
(a)the real estate to Dr Abrugiato and Ms Santacaterina that she had intended that they should take according to the succession plan and the final asset allocation in addition to the property referred to in the Deed of Separation;
(b)the second defendants control over the Family Trust and the property held in the trust, subject to the Deed of Separation (that is, the second defendants gained control of the property forming the trust fund of the Roma fund);
(c)Dr Abrugiato and Ms Santacaterina control over the Roberto Abrugiato and Luciana Santacaterina funds respectively - by that means she, in effect, divorced those funds from the Family Trust and completed a 'carve out' of the property allocated to those funds from the trust fund of the Family Trust.
The dividend payment plan
The plan
As has been explained, the succession plan identified that the issues to be addressed by Mrs Abrugiato included the liability of the Family Trust to Abrugiato and the payment of retained earnings held by Abrugiato. The plan recommended that the trust's liability and the retained earnings be discharged and paid out over a five‑year period. The retained earnings were to be eliminated by dividends declared to Mrs Abrugiato.
The plan did not explicitly relate discharging the Family Trust's liability to the payment of dividends by Abrugiato. However, reference has already been made to Mr Ivanac's evidence that the retained earnings/undrawn beneficiary entitlement were equivalent to the trust's liability - they constituted, in effect, the corresponding asset to the trust's liability. Mr Hansen gave similar evidence ‑ the repayment of the loans by the Family Trust was linked to the payment of the dividends by Abrugiato to Mrs Abrugiato (ts 454).
Mr Ivanac was unable to recall the steps by which the declaration of dividends by Abrugiato would result in the discharge of the liabilities in the Family Trust. However, Mr Hansen was able to provide the detail of the steps that were contemplated (see at ts 454 and following). Dividends declared by Abrugiato would be paid to Mrs Abrugiato out of retained earnings; Mrs Abrugiato would gift the funds received 'into the Family Trust'; the Family Trust would use the funds gifted to discharge the liabilities to Abrugiato (ts 308 ‑ 309).
It was further proposed that those transactions would be effected by journal entries and that the plan would be implemented over five years to minimise the income tax liability incurred by Mrs Abrugiato on the income received by way of dividends declared by Abrugiato. Mr Hansen described the effect of the plan to be that after five years 'you would have a company with no connection with the family trust, so that the real estate that was sitting in the company was completely divorced and separate from the other assets and there was no link between the family company and any of the other entities' (ts 309).
Implementing the dividend payment plan
A meeting or telephone conference was held between Mr Hansen and Mr Groves on 5 September 2007 to discuss, among other things, the 'splitting' of the balance sheet for the Family Trust following execution of the Deed of Separation (see exhibit 40, which was a note of the meeting made by Mr Groves, and Hansen, pars 69 ‑ 70). Mr Groves' note of the meeting recorded that a half share of 9 High Street was to be transferred to each of the Roberto Abrugiato and Luciana Santacaterina funds. The note then stated, 'balance of trust assets and liabs remain in Roma fund'. Mr Groves stated that the note recorded matters about which he advised Mr Hansen during the meeting (ts 378). However, Mr Hansen stated that he had no recollection of having been told in the discussion with Mr Groves that the assets and liabilities of the Family Trust were to remain with the Roma fund apart from the property at 9 High Street (ts 428).
I note that there was no suggestion in the evidence that the statement recorded by Mr Groves that the balance of the liabilities of the Family Trust remained with the Roma fund did not accord with his understanding of the effect of the Deed of Separation as at the time of the meeting on 13 June 2007.
Mr Groves made a file note the day after the meeting that was headed 'What needs to be done to complete our succession task?' (exhibits 41 and 42). The note stated that the matters to be completed included 'the strategy of paying franked dividends from Abrugiato P/L to Mrs Abrugiato to reduce its retained earnings needs to be commenced by [Mr Hansen]'. The note also recorded that 'F & S Abrugiato Family Trust's loan from Abrugiato Pty Ltd is to be repaid over time with the funds used by the company to pay the above dividends. This then reducing the trust's liabilities'. It was not in issue that the dividend payment plan had not been implemented by 6 September 2007 (and see Hansen, ts 429).
The annual general meeting of Abrugiato was held on 4 February 2008 (exhibit 43). On 30 January 2008, Ms Hansen of Bird Cameron sent an email to Ms Abrugiato attaching documents to be signed in advance of the general meeting (exhibit 11). Those documents included two draft resolutions declaring dividends to be made by Mrs Abrugiato as governing director of Abrugiato. Ms Hansen stated that the email was sent on his instructions (ts 430).
The '2007' resolutions
The draft resolutions sent by Ms Hansen to Ms Abrugiato on 30 January 2008 were purportedly for resolutions made on 28 June 2007 and 3 July 2007. Mrs Abrugiato signed the resolutions as drafted some time between 30 January and 4 February 2008 (the resolutions were considered at the annual general meeting of Abrugiato held on 4 February 2008). No explanation was provided for why draft backdated documents were presented to Mrs Abrugiato for her signature.
The resolution supposedly made on 28 June 2007 was made by Mrs Abrugiato in her capacity as governing director of Abrugiato. She resolved that, pursuant to the powers contained in cl 13(ii) and cl 14 of the articles of association of Abrugiato, a dividend of $400,000 be paid to 'B' class shareholders. She further resolved that 'all necessary documents be signed to execute this dividend and allocate this dividend as a reduction to the Undrawn Beneficiary Entitlement receivable from the F & S Abrugiato Family Trust' (exhibit 12).
The resolution purportedly made on 3 July 2007 was in identical terms to the '28 June' resolution. Again, it was made in Mrs Abrugiato's capacity as the governing director of Abrugiato (exhibit 13).
The general meeting held on 4 February 2008
It was apparent from the minutes of the annual general meeting of Abrugiato held on 4 February 2008 (exhibit 43) that a financial report for the company for the year ended 30 June 2007 had been circulated prior to the meeting. That report (exhibit 120) recorded that the company's non-current assets included, as 'financial assets', an 'undrawn beneficiary entitlement The F & S Family Trust' in an amount $1,485,891 ($1,917,546 for the year ended 30 June 2006). The equity of Abrugiato included retained earnings in an amount of $1,808,229 (see notes 3 and 8 to the financial statements).
The minutes of the annual general meeting recorded that Dr Abrugiato enquired as to the source and nature of 'undrawn beneficiary entitlement' and that Mr Hansen (who was invited to chair the meeting) advised that 'to the best of his knowledge this reflects distributions of accounting income from the associated family legal entity over many years maybe as far back as when the trust was established in the 1970s'. The minutes further recorded that Dr Abrugiato expressed his concern that the earning capacity of the funds represented by the entitlement was not being fully utilised to the advantage of Abrugiato.
It was also apparent from the minutes that the dividend declaration purportedly made by Mrs Abrugiato on 28 June 2007 was submitted to the meeting for ratification. The minutes only recorded in respect of that item that Dr Abrugiato and Ms Santacaterina 'objected to the notification of the dividend'. There was no record of a vote having been taken by the meeting. Mr Hansen's evidence on whether a vote was taken was inconclusive (ts 438 ‑ 440).
There was a further item in the minutes described as 'ratification of dividend paid 22/8/08'. Obviously, that description was an error. It was to be presumed that the item ought to have referred to the dividend declaration purportedly made by Mrs Abrugiato on 3 July 2007. Again, the minutes recorded that Dr Abrugiato and Ms Santacaterina objected to the notification of the dividend and there was no record of a vote having been taken by the meeting on the resolution.
Finally, the minutes recorded under and item described as 'future strategy':
Dr R Abrugiato asked the directors as to what the business strategy for the company is going forward. The chairman [Mr Hansen] advised that it was planned to continue to pay large dividends to Mrs S Abrugiato, the proceeds of which are to be used to reduce the undrawn beneficiary entitlements.
The Dividend policy is to also reduce the company's retained profits and franking credits.
In the meantime, the Directors do not intend to make any further investments by the company. This strategy has been adopted as part of the governing Directors' over all succession plan for the family.
Dr R Abrugiato wishes to advise that he is not happy with this plan. Dissatisfaction noted.
The 4 April 2008 resolutions and letters
On 4 April 2008, in her capacity as governing director of Abrugiato, Mrs Abrugiato resolved that a fully franked dividend of $1,085,891 be paid that day to her as a 'B' class shareholder in Abrugiato (exhibit 15). Again, the resolution was recorded as having been made pursuant to the powers conferred by cl 13(ii) and cl 14 of the articles of Abrugiato.
The amount referred to in the resolution of 4 April 2008 represented the balance of the retained earnings/undrawn beneficiary entitlement recorded in the accounts of Abrugiato. Although the dividend payment plan contemplated that the retained earnings/entitlement would be paid out over five years, Mrs Abrugiato's health had deteriorated by April 2008 and according to Mr Hansen, she was concerned that she would not survive the remainder of the period envisaged by the plan (ts 449).
Also on 4 April 2008:
(a)Mrs Abrugiato signed a letter addressed to the directors of Abrugiato. The letter referred to the fully franked dividend declared that day and advised that Mrs Abrugiato 'would like you to offset this dividend to the F & S Abrugiato Family Trust loan' (exhibit 48).
(b)Mrs Abrugiato signed three further letters addressed to the directors of Franknelly, Abruzzi and Ortana. The letters advised that Mrs Abrugiato gifted amounts to the Roma fund ($651,534.60), the Roberto Abrugiato fund ($217,178.20) and the Luciana Santacaterina fund ($217,178.20). Each letter further advised that 'to satisfy this gift, instructions have been issued to Abrugiato Pty Ltd … to offset your loan account with a dividend declared to me on 4 April 2008' (exhibits 49, 50 and 51).
(c)Meetings of the directors of Franknelly, Abuzzi and Ortana were held at which the letters received from Mrs Abrugiato were tabled and the gifts recorded in the letters acknowledged (exhibits 49, 50 and 51). The minutes recorded that Mrs Abrugiato and the second defendants attended the meeting of the directors of Franknelly and Mrs and Ms Abrugiato were present at the directors meetings for Abruzzi and Ortana.
The articles of association of Abrugiato
Article 13(ii) of the articles of association of Abrugiato conferred on the company's governing director the right to exercise all powers and discretions vested by the articles in the directors generally. Clause 14 of the articles contained a power to declare and pay dividends to particular classes of shareholders. However, that power was conferred on the company and not on its governing director. Article 98 of Table A required dividends to be declared by the company in general meeting on the recommendation of the directors.
Bird Cameron prepared the dividend declaration resolutions. It was clear that they did not appreciate at the time that the June and July 2007 resolutions were supposedly made that dividends could only be declared by the company in general meeting. However, Mr Hansen received advice by letter dated 6 March 2008 from solicitors about, among other things, the rights and powers conferred by the articles of association of Abrugiato on Mrs Abrugiato as the company's governing director (exhibit 14). The advice:
(a)Noted that the power conferred by Art 14 was vested in the company in general meeting.
(b)Further noted that as governing director Mrs Abrugiato had the power to cast three times the number of votes capable of being cast on a resolution put to the vote at any general meeting.
(c)Indicated that, 'although the formality of a general meeting' of Abrugiato was required in order to declare a dividend that differentiated between classes of shares, Mrs Abrugiato as the holder of the B class share had the power to determine the outcome of any resolution that had that effect. However, Mrs Abrugiato could not simply exercise the powers of the company in general meeting without a meeting being convened. She could only, as governing director, make a recommendation regarding the declaration of dividends to a general meeting.
It was not clear why the resolution of 4 April 2008 was prepared in light of the advice that Mr Hansen had received in early March 2008 (and see Hansen, ts 435 ‑ 438).
Mr Hansen did not give evidence about the resolutions in his witness statement. However, he was asked questions about the resolutions in his oral evidence‑in‑chief (ts 317 and following). The purport of the questions was to accept that the Mrs Abrugiato had made the resolutions on the dates stated, with Mr Hansen apparently agreeing that he was present on each occasion and that he explained the resolutions to Mrs Abrugiato. However, in cross‑examination Mr Hansen readily accepted that the resolutions dated 28 June and 3 July 2007 were not made on those dates (ts 425 and ts 433; that, of course, was made plain by Ms Hansen's email of 30 January 2008). He thought that Mrs Abrugiato signed the resolutions at the same time, although he was not sure of the date. He also thought that he was present when Mrs Abrugiato signed the resolutions (ts 433). However, significantly he did not give evidence of what was actually said if he was present and it was apparent from other evidence that he gave that he had not read the Deed of Separation by early 2008 (or indeed, by April 2008; he was not present at the meeting at which the deed was signed).
The 'gifts'
The dividend payment plan required that the funds provided by Mrs Abrugiato to the Family Trust be used for the purpose of reducing the loan owed by the trust to Abrugiato rather than to create a further liability in the Family Trust to Mrs Abrugiato. That was to be achieved by Mrs Abrugiato gifting the dividend payments 'into' the Family Trust according to Mr Hansen's explanation of the dividend payment plan (ts 308). However, there was no record made of any gifts of the dividends purportedly declared by the '28 June 2007' and '3 July 2007' resolutions.
Further, the resolutions and letters made and signed on 4 April 2008 provided for gifts by Mrs Abrugiato to Franknelly, as trustee for the Roma fund; Abruzzi, as trustee for the Roberto Abrugiato fund and Ortana, as trustee for Luciana Santacaterina fund. The amounts of the gifts to each fund represented the total amount of the dividend declared by Abrugiato, divided as to three‑fifths to the Roma fund and one‑fifth to each of the Roberto Abrugiato and Luciana Santacaterina funds. Mr Hansen prepared the resolutions and gift letters (ts 318). They obviously reflected a view that the liability of the Family Trust to Abrugiato had been distributed between the three funds.
The 'meeting' of 28 April 2008
Three documents were provisionally received that suggested that a further meeting of Abrugiato was held on 28 April 2008 for the purpose of passing a resolution to ratify the dividends previously declared and paid pursuant to the '28 June 2007' and '3 July 2007' and 4 April 2008 resolutions (exhibits 116P, 117P and 118P). The documents were tendered by the defendants but not for the purpose of establishing that the dividend declarations and payments were valid. Rather, the documents were said to be evidence of intention relevant to the fourth defendants claim for rectification of the Deed of Separation (ts 521).
The only person who attended the meeting in person was Mr Hansen. The minutes of the meeting recorded that he held proxies given by Mrs Abrugiato and the second defendants (exhibit 118P). There was no evidence of the circumstances surrounding the meeting (other than, by inference, that it was prompted by the advice given to Bird Cameron about the effect of the articles of association of Abrugiato) and the giving of proxies to Mr Hansen. I did not consider that the documents assisted in determining Mrs Abrugiato's intentions at the time that the Deed of Separation was made in the absence of further evidence about those circumstances. That conclusion was reinforced by the matters referred to immediately below concerning the circumstances in which the dividend declaration resolutions and the gift letters dated 4 April 2008 were signed by Mrs Abrugiato.
It was suggested that the meeting may not have occurred (see, for example, exhibit 136) or that it could not have been a proper meeting of the company. It is not necessary to make findings about those matters in light of the finding made in the previous paragraph.
The evidence on the making of the dividend resolutions and the gift letters
The defendants also relied on the resolutions purportedly declaring dividends and the gift letters of 4 April 2008 as evidence of Mrs Abrugiato's intentions to divide the liabilities of the Family Trust equally between the three trust funds created by the Deed of Separation. However, there was scant evidence on the circumstances in which Mrs Abrugiato signed those documents. Mr Hansen thought that he was present when they were signed but significantly, he gave no evidence about the circumstances in which the documents were signed in his witness statement (I accept that Mr Hansen was present when the documents dated 4 April 2008 were signed). Ms Abrugiato produced the resolutions dated 27 June and 3 July 2007 as forming part of the business records of Abrugiato (Abrugiato, pars 98 and 100) but also gave no evidence about the circumstances in which they were signed. Ms Keutzer and Ms Murray did not refer to the '2007' resolutions in their evidence. Consequently, there was no evidence that those resolutions were ever read or explained to Mrs Abrugiato (remembering that she was legally blind by this time).
Two further matters require comment. First, I was left with the impression from the whole of the evidence that the fourth defendant's claim was to rectify the Deed of Separation to accommodate events that had occurred since the deed was made and which were 'unforeseen': the death of Mrs Abrugiato within the five‑year period contemplated by the dividend payment plan and the alleged invalidity of the dividend declaration and payment resolutions made by Mrs Abrugiato. In my view, Mrs Abrugiato's primary intention in relation to the Family Trust's liabilities was to adopt and implement the dividend payment plan. As has already been noted, the defendants would have had no complaint about the effect of the Deed of Separation had the plan been fully and properly implemented. That did not mean that the deed necessarily gave effect to Mrs Abrugiato's actual intentions (that would be to reason backwards from one outcome). However, the Deed of Separation was, in my view, made on the assumption that the dividend payment plan would be effectively and completely implemented. The rectification claim was approached in those circumstances with the observations of Hodgson J in Trimmer v Lux and Young J in Estate of Max Frederick Dippert, cited by Campbell J in Rawack, in mind.
Second, the defendants sought to emphasise that, on their case, the Schedule to the Deed of Separation was not read or explained to and discussed with Mrs Abrugiato. I have concluded that I was not satisfied by the evidence that Mrs Abrugiato held the intentions alleged by the defendants. I have also held that I could not make a finding on the evidence about whether the allocation of the Family Trust's liabilities under the Deed of Separation was explained to or discussed with Mrs Abrugiato as the meeting held on 13 June 2007. The defendants carried the onus of establishing that the Schedule and the allocation were not considered at the meeting to the extent that they relied on an allegation to that effect as part of the rectification and fraud on a power pleas.
Estoppel (preliminary issue 12)
The claim that the plaintiffs were estopped from denying that the liabilities of the Family Trust were allocated one‑fifth each to Abruzzi and Ortana and three‑fifths to Franknelly rested on the same factual allegations as the fourth defendant's claim for rectification. Consequently, counsel for the defendants closed their case on the basis that the fate of the estoppel allegation rested with the rectification claim (ts 558). Counsel clarified that statement later in closing by informing the court that the defendants did not rely on the estoppel plea (ts 579).
Fraud on a power (preliminary issue 9)
The defendants' contentions
The defendants contended in respect of the power conferred by cl 16(aa)(iv) of the Trust Deed (the deed was amended to add the clause by the Deed of Variation made on 13 June 2007; exhibit 5) that (defendants' closing submissions, par 194):
The purpose of amending clauses 16 effected by the deed of variation was to divide the trust fund and in so doing to prepare separate accounts for each part of the trust fund divided (cl 16B(b)) … in respect of liabilities incurred after the appointment of a separate trustee to confine the right to indemnification and contribution where the separate trustee incurs liabilities after their appointment as separate trustee. The plain intent of the deed of variation is that where separate trustees are appointed for any part of the trust fund, that part of the trust fund will assume its proportionate share of liabilities having regard to the assets received and be solely responsible for its own liabilities, from 1 July 2007. The deed did not authorise the separation of assets of the Family Trust into separate funds in circumstances where provision was not made for the apportionment of the liabilities of the Trust in proportion to the assets transferred. That did not occur.
The defendants submitted, in the alternative, that if the deed allowed for an 'uneven apportionment' of the liabilities of the Family Trust, there was no evidence that 'they' gave any real consideration to whether 'that was appropriate having regard to the interests of the beneficiaries, such as the needs of the beneficiaries and whether that course of action operated to the benefit or detriment of any of the beneficiaries' (defendants' closing submissions, par 195).
The defendants relied on what has been referred to as the principle in In re Hastings‑Bass (decd) [1975] Ch 25. The Court of Appeal held in that case that (41):
Where by the terms of the trust … a trustee is given a discretion as to some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless … (2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account.
In Breadner v Granville‑Grossman [2001] Ch 523, Park J described the principle in In re Hastings‑Bass as 'an emerging principle which may be applied to exercises of powers by trustees, and it has obvious affinities to the much more developed area of the principles which courts will apply when judicially reviewing the exercises of statutory powers by public authorities' (542). That observation must now be considered in light of the decision of the Court of Appeal in Pitt v Holt; Futter v Futter [2011] EWCA Civ 197; [2012] Ch 132.
A distinction is to be drawn between a purported exercise of power by a trustee that was in excess of the power conferred and an exercise of a discretion that was within power but which, nevertheless, constituted an abuse of the power conferred. In the former instance, the act done in excess of power is void. In the latter instance, the act that constituted the abuse of power may be voidable at the instance of a beneficiary who is adversely affected: Pitt v Holt [222] (Lloyd LJ). Although a fraud on a power is usually expressed by reference to the powers vested in a trustee, the principle is concerned with the limitations on the powers vested by a trust deed in persons connected with the administration of the trust. It may, therefore, apply to a power of appointment conferred on an appointor: see Pitt v Holt at [97] and the references to Cloutte v Storey [1911] 1 Ch 18 and Vatcher v Paull [1915] AC 372. Whether the principle does apply to a power conferred on an appointor will depend on the nature of the power conferred.
The alleged excess of power
The power to appoint separate trustees over parts of the Trust Fund was conferred on Mrs Abrugiato by cl 16(aa)(iv). There was no express limitation on the power of the kind for which the defendants contended and I can see no basis for implying such a limitation. Reference was made to cl 16A(d) and (e) and cl 16B(b). However, the requirement imposed by cl 16B(b) was merely that separate accounts be prepared for any trust fund created by the exercise of the power conferred by cl 16(aa)(iv), while cl 16A(d) and (e) provided for the rights of any separate trustee to be indemnified out of the separate part of the Trust Fund to which they were appointed. There was no provision that expressly or by implication conditioned the power conferred by cl 16(aa)(iv) by requiring that a separate trustee appointed to a part of the Trust Fund assume a liability to indemnify Franknelly for its liabilities according to some ratio between the value of the property forming that part and the total liabilities incurred by Franknelly as trustee prior to the appointment.
In my view, it was within Mrs Abrugiato's power to create separate trust funds subject to the trustees assuming certain liabilities as specified by the Deed of Separation. Each separate trustee agreed to take as trustee the assets constituting each fund subject to those liabilities and the rights of indemnity for which the deed expressly provided.
The principle in Hastings‑Bass and Pitt v Holt
The English Court of Appeal reviewed the principle in Hastings‑Bass in Pitt v Holt. The leading judgment was given by Lloyd LJ. The effect of that judgment was said by Longmore LJ to demonstrate how the law had taken a 'seriously wrong turn' [227]. Mummery LJ explained how that wrong turn had occurred by reference to some basic principles relating to the exercise of fiduciary power (at [323] and following).
The Court of Appeal did not doubt that a trustee exercising a dispositive discretionary power was under a duty to give proper consideration to the matters that were relevant; see the judgment of Lloyd LJ at [102] and following. Consistent with the defendants' submissions in this matter, Lloyd LJ recognised that the matters that a trustee might have taken into account included the wishes, circumstances and needs of beneficiaries so far as they were made known to the trustee [114]. His Lordship also considered that it was appropriate that trustees have regard to the tax consequences of any proposed discretionary disposition (the context in which the principle had been most frequently applied in England). A question that arose in that context was whether trustees were in breach of trust where they had taken and acted on professional advice that turned out to be wrong so that the tax consequences of a disposition were not as had been intended by the trustees. Lloyd LJ concluded that:
… if the trustees, aware of the need to consider relevant matters, seek advice (whether in general or in specific terms) as to the position while considering what, if anything, to do under their discretionary powers, then unless the process of taking and acting on the advice is itself open to challenge in some way, I do not see how that the trustees can be said to be in breach of their duty if they proceed to address the exercise of their discretionary power on the basis of the advice given to them as to, for example, tax consequences.
Accordingly, in my judgment, in a case where the trustees' act is within their powers, but it is said to be vitiated by a breach of trust so as to be voidable, if the breach of trust asserted is that the trustees failed to have regard to a relevant matter, and if the reason that they did not have regard to it is that they obtained and acted on advice from apparently competent advisors, which turned out to be incorrect, then the charge of breach of trust cannot be made out. [124] ‑ [125]
Further, Lloyd LJ concluded that the correct principle where a trustee is alleged to have acted within power but the exercise of the power was vitiated by a failure to take into account a relevant factor or by taking into account an irrelevant matter was that:
… first, that the trustees' act is not void, but that it may be voidable. It will be voidable if, and only if, it can be shown to have been done in breach of fiduciary duty on the part of the trustees. If it is voidable, then it may be capable of being set aside at the suit of a beneficiary, but this would be subject to equitable defences and to the court's discretion. The trustees' duty to take relevant matters into account is a fiduciary duty, so an act done as a result of a breach of that duty is voidable. [127] (emphasis added)
As Lloyd LJ pointed out, one practical consequence of his understanding of the relevant principles was that 'if in future it is desired to challenge an exercise by trustees of a discretionary power on this basis, it will be necessary for one or more beneficiaries to grasp the nettle of alleging and proving a breach of fiduciary duty on the part of the trustees' [130].
Lloyd LJ also concluded that the circumstances in which a disposition by a trustee exercising a discretion could be set aside on the grounds of mistake were limited to instances where the trustee had been mistaken as to the legal effect of the disposition or as to an existing fact that was basic to the transaction [210] and [223]. The disposition could not be set aside merely because it gave rise to unforeseen consequences - for example, adverse tax consequences.
The decision in Pitt v Holt is discussed in Principles of the Law of Trusts at [12.14710] and following. Three points of relevance are made in that commentary:
(a)Where it is alleged that the exercise of a discretion to make a disposition by a trustee has been effected by a mistake, a distinction is to be made between the legal effect of an instrument by which the disposition was made and 'its hoped for consequences' [12.14730].
(b)In principle, a court should only intervene where it was clear that the trustee would not have acted as it did had it not failed to take into account considerations that ought to have been taken into account or took into account considerations that ought not to have been taken into account. The court should not intervene if it can only be shown that the trustee might have acted differently [12.14750].
(c)The 'error made in some English cases that the rule in Hastings‑Bass allowed an effectively executed instrument to be set aside because it had unintended consequences is unlikely to be made in Australian courts that have regard to the comprehensive [decision in] Pitt v Holt' [12.14830].
The alleged failure to consider
I do not consider that the powers conferred by cl 16 of the Trust Deed were fiduciary in character (a point taken by the plaintiffs in supplementary submissions on Pitt v Holt) or more particularly, that the occasion of their exercise imposed any fiduciary obligation on Mrs Abrugiato. The powers were conferred on her as Appointor. They were personal powers, at least when they were exercised in the circumstances here under consideration, intended to facilitate the settlement of trust property from within the Trust Fund according to Mrs Abrugiato's wishes; they were not discretionary powers vested in a trustee to be exercised in an disinterested and impartial manner. The Deed of Separation was a means by which Mrs Abrugiato made voluntary settlements of what were, in substance, her assets. Mrs Abrugiato may have owed a fiduciary obligation as a director of Franknelly in relation to that company agreeing to the terms of the Deed of Separation but that was an obligation that was derived from a different source and which was not raised for consideration by the parties.
In any event, the allegation that Mrs Abrugiato failed to consider whether it was appropriate to apportion its liabilities unevenly between the trust funds created by the Deed of Separation, having regard to the interests of the beneficiaries such as their needs and whether what was proposed was beneficial or detrimental to any of the beneficiaries, cannot be sustained. The question of whether any of Mrs Abrugiato's children had any particular needs was expressly referred to in the succession plan. There was no evidence that any of the children had a particular need that would require special consideration or that there was a significant disparity in their financial circumstances.
Further, Mrs Abrugiato considered the distribution of her estate and the succession plan at great length. The Deed of Separation, the dividend declaration plan and Mrs Abrugiato's will were the means by which the succession plan was implemented. The effect of the plan on each of Mrs Abrugiato's children was exhaustively considered. Provision was expressly made for discharging the liabilities of the Family Trust through the dividend payment plan. The Deed of Separation was made on the assumption that the plan would be completely and properly implemented. The succession plan and the deed were formulated and prepared with the benefit of professional advice. It cannot be said that Mrs Abrugiato failed to consider whether the succession plan, taken as a whole, would benefit one child at the expense of the others or that she failed to consider the effect of the liabilities of the Family Trust when making the Deed of Separation having regard to that plan.
In supplementary submissions, the defendants sought to raise the possibility that there had been a mistake of the kind to which Lloyd LJ had referred in Pitt v Holt. It was said that, 'the orders for preliminary issues did not include as an issue whether, independent of the question of rectification, in making the Deed there was a mistake made by [Mrs Abrugiato] and if so, whether that mistake was sufficient to set aside the Deed' (par 14). It was further submitted that the issue should be determined as the question of whether of whether Mrs Abrugiato 'was labouring under a mistake when she executed the Deed was central to the claim for rectification and considerable evidence was led in support of that claim and fully ventilated' (par 15). However, the submissions did not identify why the Deed of Separation would be set aside for a mistake as to its legal effect if it was not to be rectified.
The fourth defendant's claim for rectification did not fail because of a positive finding that the Deed of Separation gave effect to Mrs Abrugiato's actual intentions; it failed for want of evidence that the deed did not accurately record and give effect to those intentions. The same evidentiary difficulties confronted the submission that the deed embodied a mistake of the kind considered by Lloyd LJ in Pitt v Holt. Further, in the circumstances of this matter, allegations of mistake about the effect of the Deed of Separation either stood or fell with the rectification plea (a mistake that was not susceptible to rectification could not have been a mistake about the legal effect of the deed and accordingly, could only have been a mistake about the consequences of something that had subsequently occurred).
The defendants also raised in their supplementary submissions a claim that Mrs Abrugiato had abused the power of appointment conferred by cl 16(aa)(iv) of the Trust Deed by failing to consider the allocation of liabilities provided for by the Deed of Separation at the meeting held on 13 June 2007, including by failing to ensure that the Schedule to the deed was read or explained and by not asking questions about the allocation of the Family Trust's liabilities. The failure was said to have occurred in circumstances where 'an essential purpose of the Deed was that the liabilities of the Family Trust to the Company be divided equally among [Mrs Abrugiato's] five children' (par 19). Accordingly, the submission rested on two propositions not established by the evidence: the purpose of the deed and that the allocation of liabilities contained in the Schedule was not read or explained to or discussed with Mrs Abrugiato.
The dividend declaration resolutions (preliminary issues 3 ‑ 6)
The circumstances surrounding Mrs Abrugiato making resolutions that purportedly declared and paid dividends by Abrugiato have already been explained, as have the relevant provisions of the articles of association of Abrugiato. I find that the resolutions supposedly made on 28 June and 3 July 2007 were not made on those dates but were made sometime between 30 January and 4 February 2008. I further find that those resolutions and the resolution purportedly made on 4 April 2008 were ineffective to declare and pay dividends to Mrs Abrugiato. The declarations could only have been made by the company in general meeting.
A preliminary issue raised by the parties was whether the dividend declaration resolutions were subsequently ratified at a meeting of the company that was minuted as having been conducted on 28 April 2008 or at another meeting of the company said to have been held on 15 December 2008 (preliminary issue 3). The plaintiffs contended that the resolutions had not been ratified at those meetings. They pleaded a number of allegations in their statement of facts, issues and contentions to the effect that the meeting minuted as having been held on 28 April 2008 did not occur (pars 4.1 ‑ 4.6, 5.2 and 7.6) and that the resolutions were not actually ratified at the meeting convened on 15 December 2008.
The defendants stated in their amended statement of facts, issues and contentions that they did not plead any facts or contentions on the issues of whether the dividend declaration resolutions were validly made or ratified and that they neither opposed nor consented to declarations being made on those issues (pars 27, 29 and 31). The plaintiffs adduced no evidence at the trial on the allegations made in their statement of facts, issues and contentions as they were not contending that the resolutions had been ratified.
No order declaring that the dividend declaration resolutions were ratified at any meeting of Abrugiato will be made in those circumstances.
Further preliminary issues were raised about whether any 'irregularity' in the dividend declaration resolutions or in the conduct of the meetings at which it had been initially alleged that the dividends had been ratified could be cured by an order made under s 1322 of the Corporations Act 2001 (Cth) (preliminary issues 4 and 5). Again, the defendants stated in their amended statement of facts, issues and contentions that they did not make any contention on those issues and they were not pursued in the trial.
Accordingly, preliminary issues 4 and 5 have not been determined and no order will be made on those issues.
Preliminary issue 6 assumed a finding that the dividend declaration resolutions were validly made or ratified or any defect in the making of the resolutions was cured. The issue does not arise.
The effect of the letters of 4 April 2008 (preliminary issue 7)
Preliminary issue 7 raised the effect of the letters signed by Mrs Abrugiato contemporaneously with the dividend declaration resolution made on 4 April 2008 and which contained gifts of the dividend supposedly paid pursuant to the resolution to the trustees of the Roberto Abrugiato, the Luciana Santacaterina and Roma funds. The parties accepted that the gifts stated to have been made by the letters must fail if the resolution was invalid (plaintiffs' statement of facts, issues and contentions, par 11.1; defendants' statement of facts, issues and contentions, pars 42 and 43). A declaration will be made to that effect.
The indemnity claim (preliminary issue 8)
The parties' contentions
The defendants contended that:
(a)The liability of the Family Trust to Abrugiato and to Mr and Mrs Abrugiato were liabilities properly incurred by Franknelly as trustee and in respect of which it was entitled to be indemnified up to and as at the time that the Deed of Separation was made.
(b)Franknelly's right of indemnity was secured by an equitable lien or charge over the Trust Fund. The Deed of Separation did not destroy or modify that right or the Franknelly's security. Rather, each fund created by the deed took the property settled on it subject to Franknelly's equitable lien or charge.
The plaintiffs contended that (plaintiffs' statement of facts, issues and contentions, par 13.1 - 13.10):
(a)Clause 4(e) of the Trust Deed had the effect that a new trust fund was created each time Franknelly determined to set aside income of the trust for a beneficiary pursuant to cl 4(a). The beneficiary had an absolute vested interest in the property the subject of the new trust: Chianti Pty Ltd v Leume Pty Ltd [2007] WASCA 270; 35 WAR 488.
(b)Franknelly had a right to be indemnified in respect of any liability relating to the income set aside pursuant to a determination out of the separate trust created by the determination. It did not have a right to be indemnified in respect of that liability out of the balance of the Trust Fund.
(c)Franknelly was obliged to set aside the undrawn beneficiary entitlements (created by income determinations) in a separate fund. The fact that it had not done so could not create a right to be indemnified in respect of the liability to pay the entitlements against the whole of the Trust Fund. The liabilities of Franknelly to Abrugiato and F & S Abrugiato were subject to separate trusts. The assets of the Family Trust allocated to the Roberto Abrugiato and Luciana Santacaterina funds were not part of the separate trusts out of which Franknelly was entitled to be indemnified in respect of the liabilities to Abrugiato and F & S Abrugiato.
(d)Alternatively Franknelly had assumed liability for payment of the liabilities to Abrugiato and F & S Abrugiato under the Deed of Separation.
Determination of the issue - effect is to be given to the Deed of Separation
As HAJ Ford and WA Lee note in Principles of the Law of Trusts (looseleaf), the security interest created by a trustee's right of indemnity has features of an equitable charge and an equitable lien [14.250]. It arises by operation of law but may be enforced in the same way as a charge. It creates an equitable proprietary interest as a security for the trustee's right to be indemnified out of the trust property.
Two related consequences flow from the nature of the trustee's indemnity that are relevant. First, the trustee's interest will generally prevail over any person who does not acquire legal title to trust assets in good faith and for value without notice of the trustee's rights. Consequently, a successor trustee will normally take subject to any unsatisfied charge or lien held by the former trustee. Second, the trustee's rights are subject to agreement. An equitable charge is created by an act of the chargor, usually by a contract or a will made by the chargor. Although an equitable lien arises by implication of law, it has been observed in relation to vendors' and purchasers' liens (Worthington S, Proprietary Interests in Commercial Transactions (1996), 239):
A lien is predicated on the existence of equitable obligations requiring the vendor or purchaser to act in particular ways: the lien is merely equity's expression of those obligations.
Equity presumes the parties' agreement is subject to particular obligations, including those which give rise to liens. However, these presumptions are rebuttable. It follows that vendors' and purchasers' liens will not arise if the obligations they suggest are incompatible with the express or inferred agreement between the parties.
The effect of the Deed of Separation was that:
(a)Abruzzi and Ortana were appointed successor trustees to Franknelly to that part of the Trust Fund that was specified in items 7.1 and 8.1 of the Schedule;
(b)Franknelly agreed to relinquish its right of indemnity from, and proprietary interests in, the assets to which Abruzzi and Ortana were appointed as trustees in consideration for Abruzzi and Ortana assuming liability for and indemnifying Franknelly in respect of whatever liabilities were specified in items 7.2 and item 8.2;
(c)Franknelly otherwise retained its right to be indemnified out of the Trust Fund (the Roma fund).
That is, Franknelly's security interest was modified by agreement between itself as the outgoing trustee and Abruzzi and Ortana as the incoming trustees of parts of the Trust Fund.
The defendants contended, in effect, that Franknelly could only lose its right of indemnity to a purchaser of the trust's assets in good faith for value and without notice of its equitable interest. That is the qualification usually expressed in the texts but that, I think, is because they are generally concerned with statements of principles rather than the detail of particular instances where the right may have been relinquished or modified by agreement.
There is a discussion in Principles of the Law of Trusts about whether a trustee can agree to act on terms that excluded its right of indemnity [14.3930]. The authors note at least three reasons why a trustee might not be able to exclude the right: the right is inseparable from the office; the denial of the right could affect the performance by the trustee of its duties and the exercise of its discretions and there are persons other than the trustee for whose benefit the trustee should hold a non-excludable right of indemnity. They also note a conflict in the authorities on the point, including the judgment of Brooking J in RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 in which his Honour stated that he could see no reason in authority or principle to prevent a trustee from agreeing to exclude its right of indemnity.
Similarly, I can see no reason why effect should not be given to the Deed of Separation according to its terms. None of the reasons given in Principles of the Law of Trusts for why the right of indemnity might be incapable of being excluded by a trust instrument apply in this instance. Franknelly was removed as trustee of part of the Trust Fund and new trustees were appointed; Ortana assumed liability for certain liabilities previously owed by Franknelly and Franknelly retained the right to be indemnified out of the trust property over which it remained trustee. The retention by Franknelly of an equitable charge or lien over the assets specified in items 7.1 and 8.1 of the Schedule would be inconsistent with the parties' express intentions and any presumed obligation in equity.
The plaintiffs' primary contention concerning cl 4(e) of the Trust Deed
I am not satisfied that the evidence established the premise on which the plaintiffs' primary contention was founded; that is, that there was no distribution of the income determinations ‑ the beneficiary entitlements ‑ to Abrugiato and Mr and Mrs Abrugiato but rather, that the funds represented by those determinations/entitlements were applied by Franknelly in breach of the 'new' trusts that were created by the determinations. There was no direct evidence of determinations having been made in the past by Franknelly under cl 4(e) of the Trust Deed but no party disputed that determinations had been made and that they had been made by placing the amounts set aside to the credit of beneficiaries in the books of the Family Trust under cl 4(b)(iii). However, they were described in the accounts of the Family Trust that were in evidence as beneficiary loans ‑ a current liability incurred as a result of borrowings by the Family Trust. That description suggested that the credit balances had been notionally paid out (the trust property created by the determinations having vested absolutely in the nominated beneficiary) and lent back to the trust, transactions that were presumably effected by journal entries if they occurred. It was not possible to ascertain from the evidence whether that actually happened. If it did, the loans were to Franknelly for the purpose of the Family Trust generally and its right of indemnity in respect of the liability created would be against all of the Trust Fund (the loans would, in effect, be of the funds held by Franknelly as income generated from the trading activities of the trust; the journal entries recording the income determinations, distributions and loans having the effect of enabling Franknelly to retain and apply the income (albeit as borrowed money) to accumulate assets for the trust). In my view, it was necessary for the plaintiffs to have adduced some further evidence on this issue given the description of the relevant item in the accounts of the Family Trust if they wished to establish the foundation for their contention.
The grant of declaratory relief
As was noted earlier in the reasons, the defendants neither consented to nor opposed the making of the declarations sought by the plaintiffs regarding the dividend declaration and payment resolutions purportedly made by Mrs Abrugiato as governing director of Abrugiato. That raised the question of whether there was a proper contradictor and whether the court should exercise its discretion to grant the declaratory relief claimed by the plaintiffs.
The need for a proper contradictor and the discretion to grant declaratory relief generally was recently considered by the Full Federal Court in Australian Competition and Consumer Commission v MSY Technology Pty Ltd [2012] FCA FC 56. It is not necessary to discuss the detail of the judgment delivered by the court. It is sufficient to note that the court accepted, after a detailed analysis of the relevant authorities, that the following statement from the judgment of French J, as his Honour then was) in IMF (Australia) Ltd v Sons of Gwalia Ltd (Administrator appointed) (2004) FCA 1390; 211 ALR 231 [47] was a correct statement of the law:
The requirement of a proper contradictor in a declaratory context is not merely to ensure that the court will be provided with all materials but also that absent a contradictor there is no person to be bound by the relief sought … a proper contradictor, for jurisdictional purposes, in my opinion cannot be confined to the class of party who comes to the court ready to oppose the relief sought. There may be a case in which a party, whether a private person or body or a statutory regulator, expresses opposition to, and an intention to oppose, a proposed course of action by another party on the basis that it is in breach of some contractual or statutory prohibition. The party opposing the conduct may however decide for any one or more of a variety of reasons not to contest declaratory proceedings about the lawfulness of the proposed conduct. So the declaration may be made by consent or may be uncontested. This does not mean that the court lacks jurisdictional power to grant the declaration in such a case. The proceedings will have resolved a pre‑existing controversy.
That passage is entirely apposite to the circumstances of this matter. The defendants opposed the declaratory relief sought by the plaintiffs regarding the dividend declaration and resolutions until the commencement of the trial. Whether the dividends referred to in the resolutions had been validly declared and associated issues were among the preliminary issues set for determination at the trial. It was a matter on which the executors had sought direction as it plainly affects the affairs of the estate. Resolution of the issue also affects the affairs of Abrugiato and the state of its accounts. There may be consequences for the affairs of Franknelly, Abruzzi and Ortana given the use that was made by Mrs Abrugiato of the dividends that were purportedly declared and paid to her. Plainly, there was a real controversy over the issue so that there would be utility in making the declaration sought by the plaintiffs. There are parties who will be affected by the making and form of the declaration.
The determination of the preliminary issues
The preliminary issues are determined as follows on the findings that have been made:
(a)Issue 1 ‑ The fourth defendant has failed to establish that it is necessary to rectify the Deed of Separation to record Mrs Abrugiato's intentions.
(b)Issue 2 ‑ Dividends were not validly declared by the resolutions made by Mrs Abrugiato purportedly on 28 June and 3 July 2007 and 4 April 2008.
(c)Issue 3 ‑ No order declaring that the dividend declaration resolutions were ratified at any meeting of Abrugiato will be made.
(d)Issues 4 and 5 ‑ The parties did not present any argument or evidence on the effect of the Dividend Proceedings. Accordingly, no determination has been made on issues 4 and 5 and no order will be made in respect of the issues.
(e)Issue 6 - This issue did not require a determination as the premise on which the issue was based was not established.
(f)Issue 7 ‑ The gifts made by Mrs Abrugiato by the letters of 4 April 2008 were connected to the resolution purportedly made by her on that day. The resolution was invalid so that the gifts also fail.
(g)Issue 8 ‑ Franknelly is not entitled to be indemnified out of the assets of the Roberto Abrugiato fund and the Luciana Santacaterina fund for its liabilities to Abrugiato and the late Mr and Mrs Abrugiato.
(h)Issue 9 ‑ The making of the Deed of Separation on the terms contained in the deed was not a fraud on the powers vested in Franknelly as trustee of the Family Trust.
(i)Issues 10 and 11 ‑ The Roberto Abrugiato fund and the Luciana Santacaterina fund are not each liable for one‑fifth of the debts and liabilities of Franknelly as trustee of the Family Trust and the funds have not undertaken to indemnify Franknelly as trustee of the Roma fund for one‑fifth each of its liabilities incurred as trustee of the Family Trust or in any other capacity. The funds are each liable for the debts and liabilities recorded in items 7.2 and 8.2 respectively of the Schedule to the Deed of Separation.
(j)Issue 12 ‑ No party to the Deed of Separation or their privies is estopped from denying that the Roberto Abrugiato fund and the Luciana Santacaterina fund are each liable for one‑fifth of the liabilities of Franknelly to Abrugiato and the late Mr and Mrs Abrugiato or that the funds and the trustees of those funds are liable to indemnify Franknelly in respect of those liabilities.
Annexure A