Cardaci v Cardaci
[2023] WASCA 158
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: CARDACI -v- CARDACI [2023] WASCA 158
CORAM: BUSS P
MURPHY JA
MITCHELL JA
HEARD: 1 - 3 FEBRUARY 2023
DELIVERED : 9 NOVEMBER 2023
FILE NO/S: CACV 100 of 2021
BETWEEN: FILIPPO PRIMO CARDACI as the former executor of the estate of MARCO ANTONIO CARDACI
First Appellant
ONGOLD CORPORATION PTY LTD
Second Appellant
RECTANGULAR PTY LTD
Third Appellant
AND
MAE CARDACI
First Respondent
GIOVANNI MAURIZIO CARRELLO as trustee in the bankruptcy of the estate of MARCO ANTONIO CARDACI (Deceased)
Second Respondent
POWERCITY PTY LTD
Third Respondent
DUPORTE CORPORATION PTY LTD
Fourth Respondent
FILE NO/S: CACV 101 of 2021
BETWEEN: WASHBURN PTY LTD
First Appellant
RECTANGULAR PTY LTD
Second Appellant
ONGOLD CORPORATION PTY LTD
Third Appellant
FILIPPO PRIMO CARDACI
Fourth Appellant
ANGELA FRANCESCA CARLA FLORIDO
Fifth Appellant
AND
MAE CARDACI
First Respondent
DUPORTE CORPORATION PTY LTD
Second Respondent
POWERCITY PTY LTD
Third Respondent
FILE NO/S: CACV 7 of 2022
BETWEEN: WASHBURN PTY LTD
First Appellant
RECTANGULAR PTY LTD
Second Appellant
ONGOLD CORPORATION PTY LTD
Third Appellant
FILIPPO PRIMO CARDACI
Fourth Appellant
ANGELA FRANCESCA CARLA FLORIDO
Fifth Appellant
AND
MAE CARDACI
First Respondent
DUPORTE CORPORATION PTY LTD
Second Respondent
POWERCITY PTY LTD
Third Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: LE MIERE J
Citation: CARDACI -v- FILIPPO PRIMO CARDACI as executor of the estate of MARCO ANTONIO CARDACI [No 5] [2021] WASC 331
File Number : CIV 1750 of 2017, CIV 3186 of 2016
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: LE MIERE J
Citation: CARDACI -v- FILIPPO PRIMO CARDACI as executor of the estate of MARCO ANTONIO CARDACI [No 5] [2021] WASC 331 (S)
File Number : CIV 1750 of 2017, CIV 3186 of 2016
Catchwords:
Trusts - Trustees - Removal of trustees - Discretionary trusts - Special power of appointment - Whether trial judge had power to remove trustees - Scope of court's power to remove a trustee - Whether jurisdiction only arises on finding of bad faith, improper purpose, misconduct or a failure or refusal to give real and genuine consideration to the exercise of powers in favour of an eligible object - Relevance of past breach of trust in exercise of special power of appointment - Whether corporate trustee gave real and genuine consideration - Whether controller of corporate trustee had a closed mind with respect to trustee's discretion to distribute - Where distributions to respondent beneficiary ceased - Where controller of corporate trustee stated that he would never distribute to the respondent beneficiary
Trusts - Trustees - Conduct of trustee - Whether findings as to conduct of controller of corporate trustee sufficient to justify removal of trustee - Whether controller of corporate trustee understood nature of powers and obligations of trustee - Where controller of corporate trustee did not distinguish between personal capacity and capacity as controller of trustee in making a settlement offer - Whether controller caused corporate trustee to act contrary to the best interests of the trust by entering into substituted shareholders agreement - Where substituted contractual position was identical - Whether controller of corporate trustee sufficiently explained decision to characterise certain payments as loans - Whether controller of corporate trustee caused trustee to act in breach of trust by making or ratifying an unauthorised payment - Whether payment was unauthorised - Whether ratification of payment involved a conflict of interest
Trusts - Trustees - Appointment - Appointment of beneficiary as trustee - Where absence of evidence as to proposed alternative trustee - Whether denial of procedural fairness - Whether beneficiary's obligation under a litigation funding agreement created a conflict of interest and duty - Whether trial judge's exercise of discretion to appoint replacement trustee was unreasonable or plainly unjust
Succession - Administrators and executors - Cross-appeal - Whether executor breached duty to exercise reasonable care and skill - Where executor asserted and accepted alleged liability of the estate - Where executor caused the estate to be administered in bankruptcy - Whether executor acted reasonably - Whether discretion to relieve liability under Trustees Act 1962 (WA) s 75 was enlivened
Succession - Administrators and executors - Whether conduct of executor in other capacities sufficient to empower court to revoke grant of probate - Scope of court's power to revoke probate and remove an executor - Where executor acted in breach of duty - Where executor acted unreasonably in defending the primary proceedings - Where removal necessary to ensure due and proper administration of the estate
Costs - Trustee's right of indemnity - Whether corporate trustees entitled to be indemnified for their own costs of the primary proceedings out of the trust funds - Whether corporate trustee was required to restore trust funds under the trust deed - Proper construction of trust instrument
Appeal - Practice and procedure - Post-hearing application to withdraw concession
Legislation:
Trustees Act 1962 (WA), s 71, s 75, s 77, s 92, s 95
Result:
Appeals dismissed
Cross-appeal allowed
Matter remitted to the General Division for an assessment of damages
Category: A
Representation:
CACV 100 of 2021
Counsel:
| First Appellant | : | N C Hutley SC and T M Rogan |
| Second Appellant | : | N C Hutley SC and T M Rogan |
| Third Appellant | : | N C Hutley SC and T M Rogan |
| First Respondent | : | M D Cuerden SC & N L Pham |
| Second Respondent | : | No appearance |
| Third Respondent | : | No appearance |
| Fourth Respondent | : | No appearance |
Solicitors:
| First Appellant | : | Bennett |
| Second Appellant | : | Bennett |
| Third Appellant | : | Bennett |
| First Respondent | : | Herbert Smith Freehills |
| Second Respondent | : | Tottle Partners |
| Third Respondent | : | In person |
| Fourth Respondent | : | In person |
CACV 101 of 2021
Counsel:
| First Appellant | : | N C Hutley SC and T M Rogan |
| Second Appellant | : | N C Hutley SC and T M Rogan |
| Third Appellant | : | N C Hutley SC and T M Rogan |
| Fourth Appellant | : | N C Hutley SC and T M Rogan |
| Fifth Appellant | : | N C Hutley SC and T M Rogan |
| First Respondent | : | M D Cuerden SC & N L Pham |
| Second Respondent | : | No appearance |
| Third Respondent | : | No appearance |
Solicitors:
| First Appellant | : | Bennett |
| Second Appellant | : | Bennett |
| Third Appellant | : | Bennett |
| Fourth Appellant | : | Bennett |
| Fifth Appellant | : | Bennett |
| First Respondent | : | Herbert Smith Freehills |
| Second Respondent | : | In person |
| Third Respondent | : | In person |
CACV 7 of 2022
Counsel:
| First Appellant | : | N C Hutley SC and T M Rogan |
| Second Appellant | : | N C Hutley SC and T M Rogan |
| Third Appellant | : | N C Hutley SC and T M Rogan |
| Fourth Appellant | : | N C Hutley SC and T M Rogan |
| Fifth Appellant | : | N C Hutley SC and T M Rogan |
| First Respondent | : | M D Cuerden SC & N L Pham |
| Second Respondent | : | No appearance |
| Third Respondent | : | No appearance |
Solicitors:
| First Appellant | : | Bennett |
| Second Appellant | : | Bennett |
| Third Appellant | : | Bennett |
| Fourth Appellant | : | Bennett |
| Fifth Appellant | : | Bennett |
| First Respondent | : | Herbert Smith Freehills |
| Second Respondent | : | In person |
| Third Respondent | : | In person |
Case(s) referred to in decision(s):
Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220
Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 265 CLR 1
Anderson v Mercy Hospital Mount Lawley [2020] WASCA 42
Armitage v Nurse [1998] Ch 241
ASIC v Drake [No 2] [2016] FCA 1552; (2016) 340 ALR 75
Attorney-General (Cth) v Breckler [1999] HCA 28; (1999) 197 CLR 83
Baldwin v Greenland [2006] QCA 293; [2007] 1 Qd R 117
Banditt v The Queen [2005] HCA 80; (2005) 224 CLR 262
Barnes v Addy (1874) LR 9 Ch App 244
Blenkinsop v Herbert [2017] WASCA 87; (2017) 51 WAR 264
Cardaci v Filippo Primo Cardaci as executor and trustee of Marco Antonio Cardaci [No 3] [2022] WASC 412
Cardaci v Filippo Primo Cardaci as executor and trustee of Marco Antonio Cardaci [No 4] [2022] WASC 453
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524
CBRE (V) Pty Ltd v City Pacific Ltd (in liq) [2022] NSWCA 54; (2022) 365 FLR 45
Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226
Clay v Clay [2001] HCA 9; (2001) 202 CLR 410
Commissioner of Taxation (Cth) v Bargwanna [2012] HCA 11; (2012) 244 CLR 655
Crossman v Sheahan [2016] NSWCA 200; (2016) 115 ACSR 130
Davison v Vickery's Motors Ltd (in liq) (1925) 37 CLR 1
Dimos v Skaftouros [2004] VSCA 141; (2004) 9 VR 584
Elovalis v Elovalis [2008] WASCA 141
Equity Trustees Ltd (as sole trustee of Sir Colin and Lady MacKenzie Trust Fund) v Attorney‑General (Vic) [2019] VSC 834
Estate of Rogers v Rogers [2009] WASC 358
Evans v Tyler (1849) 2 Rob Eccl 128; (1849) 163 ER 1266
Finch v Telstra Super Pty Ltd [2010] HCA 36; (2010) 242 CLR 254
Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566
Fouche v Superannuation Fund Board (1952) 88 CLR 609
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Dobrijevic [No 3] [2017] NSWCA 109
Frost v Bovaird [2012] FCAFC 60; (2012) 203 FCR 95
George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287
Hancock v Rinehart [2015] NSWSC 646; (2015) 13 ASTLR 1
Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405
Hickey v The State of Western Australia [2014] WASCA 32; (2014) 238 A Crim R 237
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
House v The King (1936) 55 CLR 499
In re Grindey [1898] 2 Ch 593
In re Smith [1897] 2 Ch 583
In re Turner [1897] 1 Ch 536
Independent Commission Against Corruption v Cunneen [2015] HCA 14; (2015) 256 CLR 1
Ingram v Inland Revenue Commissioners [1997] 4 All ER 395
K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309
Karger v Paul [1984] VR 161
Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366
Letterstedt v Broers (1884) 9 App Cas 371
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66
Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449
Malec v JC Hutton Pty Ltd (1990) 169 CLR 638
Marsh v Patten (1868) 7 SCR (NSW) Eq 18
Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88
Miller v Cameron (1936) 54 CLR 572
Monty Financial Services Ltd v Delmo [1996] 1 VR 65
MR & RC Smith Pty Ltd v Wyatt (No 2) [2012] WASCA 110; (2012) Aust Torts Reports 82-108
National Trustees Co of Australasia Ltd v General Finance Co of Australasia Ltd [1905] AC 373
National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268
Nobarani v Mariconte [No 2] [2018] HCA 49; (2018) 92 ALJR 1031
Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287
O3 Capital Pty Ltd v WY Properties Pty Ltd [2016] WASC 82; (2016) 49 WAR 517
Pantorno v The Queen (1989) 166 CLR 466
Papadimitriou v The Queen [2011] WASCA 140; (2011) 214 A Crim R 50
Partridge v The Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149
Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) [2003] HCA 25; (2003) 214 CLR 514
Plan B Trustees Ltd v Parker [No 2] [2013] WASC 216; (2013) 11 ASTLR 242
Pope v Pope [2001] SASC 26
Porteous v Rinehart (1998) 19 WAR 495
Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252; (2013) 302 ALR 732
Producers & General Finance Corporation Ltd v Dickson (1938) 40 WALR 34
QB4 Capital Pty Ltd v Guardian Securities Ltd [2023] FCAFC 72
Rattigan v Hanly [2020] NSWSC 1722
Re Beddoe [1893] 1 Ch 547
Re D'Jan of London Ltd [1994] 1 BCLC 561
Re Sir Colin and Lady MacKenzie Trust [No 2] [2020] VSC 335
Re Tempest (1866) LR 1 Ch App 485
Re the goods of William Loveday [1900] P 154
Rinehart v Welker [2012] NSWCA 95; (2012) 95 NSWLR 221
Savage v Union Bank of Australia Ltd (1906) 3 CLR 1170
Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 (S)
Schmidt v Rosewood Trust Ltd [2003] 2 AC 709
Searle v Keayes (1994) 126 ALR 728
Segelov v Ernst & Young Services Pty Ltd [2015] NSWCA 156; (2015) 89 NSWLR 431
Short v FW Hercus Pty Ltd (1993) 40 FCR 511
Smith v NSW Bar Association (1992) 176 CLR 256
Smith v Partridge [2018] WASC 128
Sproule v Sproule [2009] NSWSC 152; (2009) 2 ASTLR 80
Stephens v The Queen (1978) 139 CLR 315
Tokio Marine & Nichido Fire Insurance Co Ltd v Holgersson [2019] WASCA 114
Trinkler v Beale [2009] NSWCA 30; (2009) 72 NSWLR 365
Tsaknis v Lilburne [2010] WASC 152
Uniting Church in Australia Property Trust (NSW) v Millane [2002] NSWSC 1070
Walker v Stones [2001] QB 902
Wareham v Marsella [2020] VSCA 92; (2020) 61 VR 262
Wareham v Marsella [No 2] [2020] VSCA 118
Warman International Ltd v Dwyer (1995) 182 CLR 544
Washburn Pty Ltd v Cardaci [2022] WASCA 15
Wilden Pty Ltd v Green [2009] WASCA 38; (2009) 38 WAR 429
Wishart v Castlecroft Securities Ltd [2009] CSIH 65; 2010 SC 16
Woodlawn Capital Pty Ltd v Motor Vehicles Insurance Ltd [2016] NSWCA 28; (2016) 111 ACSR 377
Woodley v Woodley [2018] WASCA 149
Woodley v Woodley [No 2] [2017] WASC 94
Young v Hones [2014] NSWCA 337
Table of Contents
Summary
Factual background
Marc and Mae Cardaci and associated trusts
Events following Marc's death
The primary proceedings
Primary orders made in the Trust Action
Primary orders made in the Estate Action
Primary costs and indemnity orders
The appeals to this court
Trust Appeal
Estate Appeal
Estate Cross-appeal
Indemnity Appeal
The trial judge's assessment of the evidence of Philip and Mae
Primary facts found by the trial judge
Cardaci family business structure
The Washburn Trust established in 1995
CEFS
Loans by Powercity to Marc
Marc moves to Melbourne in 2003
Philip and Marc purchased Centurion from Frank and Carl in 2005
The relationship between Marc and Mae in 2011 ‑ 2012
Marc's will and variation of Washburn Trust on 21 December 2012
Marc's cancer diagnosis in January 2013
Death of Frank in January 2014
Marc's treatment in January - March 2014
Contura Shareholders Agreement
Death of Grace in November 2014
Purchase of Shimmer in November 2014 and the Duporte Loan
Discussions about the establishment of a foundation for Marc in 2015
Appointment of Ongold as trustee of Marc's Testamentary Trust in 2015
Receipt of funds from Grace's estate
Purchase of Watermans Bay property in late 2015
Death of Marc on 7 November 2015
Duporte Payment on 10 November 2015
Events following Marc's death: 11 November 2015 - 15 March 2016
31 March 2016 meeting
25 April 2016 meeting
Philip's attitude to Mae changes in April - May 2016
18 May 2016 meeting
Events following 18 May 2016 meeting to late June 2016
Washburn Trust and Marc's Testamentary Trust 2016 distributions: 30 June 2016
13 July 2016 meeting and 'settlement offer' by Philip
Subsequent correspondence in July 2016
August/September 2016
October 2016
November/December 2016
The sequestration of Marc's estate on Philip's application
Rectangular replaces Ongold as trustee of Marc's Testamentary Trust
Sale of Watermans Bay property in March 2017
Leone restructure in April 2017
Marc's estate not insolvent
Commencement of the Trust Action in May 2017
Rectangular appointed trustee of Marc's Testamentary Trust in 2020
Trust Appeal ground 1: court's power to remove trustee
Appellants' submissions
Scope of the court's power to remove a trustee
The trial judge's decision
Disposition
Trust Appeal grounds 2 & 3: consideration of distribution to Mae in 2016
Distribution practice of Washburn Trust during Marc's lifetime
Distributions made in June 2016
Evidence as to the decision-making process in June 2016
Documentary evidence
Philip's evidence
Mr Smith's evidence
Appellants' contentions
Disposition
Trust Appeal ground 12: reference to trust deeds
Trust Appeal grounds 4 - 8: scope of judicial review
Trust Appeal ground 4: settlement offer
Appellants' submissions
The judge's findings
Disposition
Failure to ensure Mae was adequately provided for
Failure to distinguish between personal capacity and fiduciary capacity
Trust Appeal ground 5: Leone Shareholders Agreement
The relevant shareholders agreements
The impugned finding of the trial judge
Trust Appeal ground 6: characterisation of payments to Mae as loans
Trial judge's approach
Appellants' submissions
Evidence relied on by the appellants
Disposition
Trust Appeal grounds 7 & 8: Duporte Payment
Ground 7: finding that the payment was unauthorised
Duporte chronology
The judge's findings on the contested evidence
Ground 7 - disposition
Ground 8: whether ratification of payment was a breach of trust
Conclusion as to grounds 7 and 8
Trust Appeal ground 9: alleged splitting of issues
Relevant exchange between counsel and the trial judge
Trial judge's reasons
Appellants' submissions
Disposition
Trust Appeal ground 10: litigation funding agreement
Terms of the Litigation Funding Agreement
Trial judge's approach
Appellants' submissions
Disposition
Trust Appeal ground 11: validity of Rectangular's initial appointment
Outcome of the Trust Appeal
Estate Cross-appeal
Mae's claim for damages or an account
Trial judge's approach
Parties' contentions
Did Philip breach his duty to exercise reasonable care and skill?
Did Philip act reasonably within the meaning of s 75 of the Trustees Act?
Exercise of discretion
Outcome of the Estate Cross-appeal
Estate Appeal
Trial judge's approach and findings
Appellants' submissions
Respondent's submissions
The court's power to revoke probate and remove an executor
Disposition
Indemnity Appeal
Trial judge's approach
Grounds of appeal and notice of contention
Rights of recoupment and exoneration in equity
Equitable right to indemnity in this case
Pleading issues
Grounds of appeal which fall away or are not established
Clause 16 of the Washburn Trust Deed
Clause 10 of the Washburn Trust Deed
Ground 6 of the Indemnity Appeal
Disposition of ground 6 of the Indemnity Appeal
Ground 3 of the notice of contention
Orders
Estate Appeal and Estate Cross-appeal (CACV 100 of 2021)
Trust Appeal (CACV 101 of 2021)
Indemnity Appeal (CACV 7 of 2022)
JUDGMENT OF THE COURT:
Summary
Marco Cardaci (Marc) died of cancer on 7 November 2015.[1] He was survived by his widow, Mae Cardaci. Marc was a wealthy man. The bulk of his wealth was held in a discretionary family trust and a discretionary testamentary trust which he controlled. Marc executed a Memorandum of Wishes expressing his desire that income and capital received by the family trust be paid to Mae after his death. When Marc died his brother, Filippo Cardaci (Philip), assumed control of both trusts and became the executor of Marc's will.
[1] As many of the relevant people share the surname 'Cardaci', it is convenient to refer to members of the Cardaci family by their first name (without intending any disrespect).
Philip acted in accordance with his brother's wishes until about May 2016, when he became aware that Mae had commenced a relationship with another person. Philip's attitude towards Mae changed at this time. On 18 May 2016, Philip told Mae that he would 'never' distribute anything to her from the family trust. In late June 2016, Philip decided to make no distribution to Mae from the family trust or the testamentary trust for the 2015/2016 financial year. On 13 July 2016, Philip made what he described as a 'settlement offer' to 'buy out' Mae's interest in Marc's estate, the family trust and the testamentary trust. He did so without distinguishing between his personal capacity and his capacity as controller of the trusts and executor of Marc's estate. For the purposes of his offer, he valued Mae's interest in the family trust at nil.
On 21 December 2016, Philip, in his capacity as executor of Marc's estate, petitioned the Federal Circuit Court for Marc's estate to be administered in bankruptcy, in part relying on the existence of an alleged debt owed by Marc's estate to the testamentary trust. The alleged debt arose out of a transfer on 10 November 2015 (just after Marc's death) of $1,280,714 to Duporte Corporation Pty Ltd (Duporte) from the testamentary trust (Duporte Payment). Duporte was a company jointly owned by Marc and Philip via their respective family trusts, which had lent money to Marc to assist in Marc's purchase of a boat.
Philip's conduct led Mae to commence the primary proceedings. In the primary proceedings, the trial judge found that misconduct by Philip as controller of the trustees had precipitated the proceedings. His Honour made orders removing the trustee companies controlled by Philip as trustees of the family trust and the testamentary trust, and appointing Mae as the trustee of those trusts. His Honour also made orders which had the effect of substituting Mae as the executor of Marc's will.
The trial judge held that the Duporte Payment was not an authorised payment from the testamentary trust when it was made, and that Philip subsequently caused the relevant trustee company to ratify the payment in breach of trust. His Honour also found that the ratified payment did not result in the estate being indebted to the testamentary trust and that, in consequence, Marc's estate was not insolvent. His Honour nevertheless dismissed Mae's claim for damages for the additional costs incurred by the estate because it was administered in bankruptcy. This was essentially on the basis that his Honour concluded that Philip had acted reasonably, albeit erroneously, in his capacity as executor in accepting that the Duporte Payment had resulted in a debt in a corresponding amount owed by Marc's estate to the testamentary trust.
The trial judge also found that Philip had caused the trustee companies to act in breach of trust by using trust funds to pay their own legal costs of the primary proceedings. The judge made orders requiring the trustee companies to restore those funds to the trusts.
Philip and other appellants have appealed against the above orders on many grounds. Mae has cross-appealed against the order dismissing her claim for damages arising from Marc's estate being administered in bankruptcy.
None of the appellants' grounds of appeal is established and the appeals should be dismissed.
Mae's cross-appeal should be allowed, on the basis that Philip did breach his duty as executor of Marc's estate in accepting and asserting that Marc's estate was liable in the amount of the Duporte Payment. There is no proper basis for relieving Philip of his liability for that breach of duty. Mae's claim should be remitted to the General Division of this court for an assessment of damages.
Our reasons for reaching these conclusions follow.
Factual background
The appeals and cross-appeal are from orders made by the trial judge in the primary proceedings, for reasons published as:
1.Cardaci v Filippo Primo Cardaci as executor of the estate of Marco Antonio Cardaci [No 5] [2021] WASC 331 (primary decision); and
2.Cardaci v Filippo Primo Cardaci as executor of the estate of Marco Antonio Cardaci [No 5] [2021] WASC 331 (S) (supplementary decision).
The following background matters are largely taken from the reasons of this court on an application for security for costs,[2] and on an application for a stay,[3] in relation to these appeals.
Marc and Mae Cardaci and associated trusts
[2] Washburn Pty Ltd v Cardaci [2022] WASCA 15.
[3] Washburn Pty Ltd v Cardaci [2022] WASCA 43.
Mae was the plaintiff in the primary proceedings and is a respondent to these appeals. As noted above, Mae is the widow of Marc, who died on 7 November 2015.
At the time of his death, the principal sources of Marc's wealth were:
1.The Washburn Trust, a discretionary family trust of which Marc was trustee, and of which Marc and Mae were among the beneficiaries. Prior to Marc's death, his brother, Philip, was the guardian and appointor of that trust. Marc, as the trustee for the Washburn Trust, was a 25% shareholder of Contura Mining Pty Ltd (Contura). Contura held many of the Cardaci family's business interests. The other three shareholders of Contura were trustees of the discretionary family trusts of Frank Cardaci (the father of Marc and Philip), Carl Cardaci (Frank's brother) and Philip.[4]
2.The Marco Antonio Cardaci Testamentary Trust (Marc's Testamentary Trust), a discretionary family trust established by the will of Marc's mother, Grace Cardaci, who died on 20 November 2014. Ongold Corporation Pty Ltd (Ongold), a company controlled by Marc, was the trustee of Marc's Testamentary Trust at the date of his death.[5]
[4] Primary decision [26] - [36].
[5] Primary decision [4].
Marc appointed Philip to be the executor and trustee of his will. Marc gave the whole of his property to his trustees 'to establish a trust for Mae'. It was on terms which included that the trustees may, within a six‑month 'Option Exercise Period' after the grant of probate and after taking professional advice, and after having considered the wishes of Mae, transfer the whole or any part of the estate to Mae or for her benefit. To the extent that the estate was not so transferred to Mae, it was to be held under a discretionary family trust, of which Mae and persons in varying degrees of relationship to Mae were beneficiaries. If Mae predeceased Marc leaving children of the marriage, the estate was to be held on trusts for the children. If Mae predeceased Marc and there were no children of the marriage, the estate was to be held on trusts established for the benefit of Philip and his sister, Angela Florido (Angela).[6]
Events following Marc's death
[6] Primary decision [72]; exhibit 1275 (Estate Appeal Green AB 161 - 169).
Following Marc's death:
1.On 24 December 2015, Philip, acting as appointor of the Washburn Trust, appointed Washburn Pty Ltd (Washburn) to be trustee of the Washburn Trust. Washburn is a company controlled by Philip.[7]
2.Philip caused Washburn to sell its shares in Contura to Leone Family Holdings Pty Ltd (Leone) and to enter into the Leone Shareholders Agreement, dated 11 April 2017.[8] The shareholders of Leone were Washburn and the three trustees of family trusts associated with Frank (which Philip controlled), Carl and Philip. The Leone Shareholders Agreement provided: for Philip to be the chairman of Leone; for Philip to determine who were to be the other directors of Leone; and for the board of directors to declare and pay a dividend to shareholders in its absolute discretion. The Leone Shareholders Agreement also provided that, unless the board of directors of Leone determined otherwise in its absolute discretion, a dividend paid to the trustee of the Washburn Trust is an unsecured loan to another company, Construction Equipment Financial Services Pty Ltd (CEFS). This loan was to be for an unlimited term that was repayable by CEFS only to the extent notified by the board of directors of Leone.[9]
3.Philip and Angela, acting as executors of Grace's estate, purportedly removed Ongold as trustee of Marc's Testamentary Trust and appointed Rectangular Pty Ltd (Rectangular), a company controlled by Philip, to be trustee of that trust.[10]
4.Philip, acting as the executor of Marc's will, obtained an order of the Federal Circuit Court that Marc's estate be administered in bankruptcy. The bankruptcy petition contended that Marc's estate was insolvent and owed:
(a)$1,280,714 to Marc's Testamentary Trust. This was on the basis of the Duporte Payment, whereby Ongold, using funds from Marc's Testamentary Trust, repaid a debt owed by Marc to Duporte (a company in which Marc and Philip each had effectively a 50% interest) for the purchase of a boat. Philip caused Ongold, as trustee for Marc's Testamentary Trust, to approve and ratify the Duporte Payment.[11]
(b)$1,614,153 to Powercity Pty Ltd (Powercity), a company controlled by Marc, which was also a beneficiary of the Washburn Trust, and which had loaned money to Marc as part of a tax minimisation arrangement.[12]
[7] Primary decision [104].
[8] See exhibit 1834 (Trust Appeal Green AB 728 ‑ 746).
[9] Primary decision [35], [446] - [449].
[10] Primary decision [4], [195].
[11] Primary decision [8], [409] - [411], [421], [430] - [435].
[12] Primary decision [439].
For a limited time after Marc's death, Philip caused certain payments to be made to Mae, including from Marc's Testamentary Trust. However, by May 2016, Philip's attitude towards Mae changed after Philip discovered that Mae was in a relationship with another person. Philip contended that the payments to Mae were loans repayable by Mae. Philip also decided that the Washburn Trust and Marc's Testamentary Trust would make no distributions to Mae for the 2015/2016 financial year. The trial judge found that, on 18 May 2016, Philip told Mae that he was the trustee of the Washburn Trust, that he would 'never' distribute anything to her from the trust and that he wanted 'all of the wealth' to go into a charitable foundation established in memory of Marc. The trial judge also found that, on 13 July 2016, Philip made what he described as a 'settlement offer' to Mae, including in his capacity as the controller of the trustees of the Washburn Trust and Marc's Testamentary Trust and executor of Marc's estate. The terms of the 'settlement offer' included that Mae would receive $2 million and relinquish any interest or entitlement that she had under Marc's estate, Marc's Testamentary Trust, the Washburn Trust or any Cardaci family entity.[13]
[13] Primary decision [5], [140], [162], [358], [397], [399], [460], [464].
The primary proceedings
On 20 December 2016 and 10 May 2017 respectively, Mae commenced the primary proceedings, being:
1.CIV 3186 of 2016 (the Estate Action), in which she sought relief including orders for:
(a)further provision from Marc's estate pursuant to the Family Provision Act 1972 (WA);
(b)declaratory relief in respect of the debts said to be owed by the estate to Marc's Testamentary Trust and Powercity;
(c)damages or an account from Philip in relation to causing Marc's estate to be administered in bankruptcy under the Bankruptcy Act 1966 (Cth); and
(d)removal of Philip as executor of Marc's estate and trustee of the trust created under Marc's will.
2.CIV 1750 of 2017 (the Trust Action), in which she sought relief including orders removing Washburn and Rectangular as trustees of the Washburn Trust and Marc's Testamentary Trust respectively and orders appointing Mae as trustee of those trusts. She also sought other relief in relation to the trusts.
Mae was largely successful in both actions.
Primary orders made in the Trust Action
In the Trust Action, Washburn and Rectangular were removed and Mae substituted as trustee of the Washburn Trust and Marc's Testamentary Trust respectively.
The trial judge also dealt with a dispute as to the validity of the purported removal of Ongold, and appointment of Rectangular, as trustee of Marc's Testamentary Trust by Philip and Angela on 30 January 2017. The trial judge held that, on their proper construction, the terms of Marc's Testamentary Trust did not authorise the executors of Grace's will to dismiss the trustee of Marc's Testamentary Trust in circumstances where he died without children. As Marc died without children, the purported dismissal of Ongold, and appointment of Rectangular, as trustee of Marc's Testamentary Trust on 30 January 2017 was invalid. That substitution did not validly occur until 15 March 2020, the day before the trial commenced, at which point it was common ground that Rectangular was validly appointed as the new trustee of Marc's Testamentary Trust.[14]
Primary orders made in the Estate Action
[14] Primary decision [599] - [601], [617] - [620].
In the Estate Action, Philip was removed as executor of Marc's estate, and the will was varied to award Mae the whole of Marc's estate. The court also declared that Marc's estate was not liable for the Duporte Payment of $1,280,714, referred to at [16.4(a)] above. The court also made an order under the Family Provision Act giving the whole of Marc's property, after payment of all debts, funeral, testamentary and administrative expenses, to Mae absolutely.
Primary costs and indemnity orders
On 23 December 2021, the trial judge made orders in the Trust Action that Washburn, Rectangular and Ongold were not entitled to be indemnified from trust assets against the costs of the Trust Action. An order was made that Philip, Washburn and Rectangular pay 90% of Mae's costs of the Trust Action (order 1). Washburn was ordered to pay to Mae, as trustee of the Washburn Trust, all money paid from trust assets for the purposes of meeting Washburn's own costs (or any other defendant's costs) of the Trust Action (order 9). Rectangular and Ongold were ordered to pay to Mae, as trustee of Marc's Testamentary Trust, all money paid from trust assets for the purposes of meeting their own costs (or any other defendant's costs) of the Trust Action (order 10). Provision was made for the taking of an account as to the amounts payable under orders 9 and 10 (order 11 and order 12).
On 5 December 2022, a registrar reported that the total amounts paid from the assets of the respective trusts for the purpose of meeting the appellants' costs of the Trust Action, with interest at 6% from the date of payment, was as set out in the following table:[15]
[15] Cardaci v Filippo Primo Cardaci as executor and trustee of Marco Antonio Cardaci [No 3] [2022] WASC 412.
Washburn Trust
Marc's Testamentary Trust
Total of monies paid
$1,786,969.93
$2,199,095.93
Total of interest payable (as of 5 December 2022)
$312,269.51
$342,696.37
TOTAL (as at 5 December 2022)
$2,099,239.44
$2,541,792.30
The registrar's report was adopted by Lundberg J on 21 December 2022.[16]
[16] Cardaci v Filippo Primo Cardaci as executor and trustee of Marco Antonio Cardaci [No 4] [2022] WASC 453.
On 23 December 2021 in the Estate Action, the trial judge made orders as to the costs of the action and the extent to which Philip was entitled to be indemnified from the assets of Marc's estate for the costs of defending the claim made in the Estate Action.
The appeals to this court
The appellants have appealed against all orders made in both the Estate Action and the Trust Action. There are three appeals, one cross‑appeal and notices of contention in two of the appeals. There are a total of 41 grounds of appeal, cross-appeal and contention, many of which are lengthy in themselves. We will attempt to identify the appeals and grounds in broad terms at this point.
CACV 100 of 2021 (Estate Appeal) is against orders made in the Estate Action. Philip, Ongold and Rectangular are the appellants in this appeal.
CACV 101 of 2021 (Trust Appeal) is against orders made in the Trust Action on 4 October 2021. Washburn, Rectangular, Ongold, Philip and Angela are the appellants in this appeal.
CACV 7 of 2022 (Indemnity Appeal) is against the orders made in the Trust Action on 23 December 2021, referred to at [23] above. Washburn, Rectangular, Ongold, Philip and Angela are the appellants in this appeal.
Mae is the first respondent to each of these appeals and the only respondent who is taking part in the appeals.
Mae has filed a notice of cross-appeal in the Estate Appeal (Estate Cross-appeal). She has also filed notices of contention in the Estate Appeal and the Indemnity Appeal.
Trust Appeal
In the Trust Appeal, the appellants appeal on grounds which may be broadly summarised as follows:
1.Grounds 1 - 3 challenge the orders removing Washburn and Rectangular as the trustees of the respective trusts, in that:
(a)absent a finding or evidence of bad faith, improper purpose, misconduct or a failure or refusal to consider the exercise of powers in favour of an eligible object, the jurisdiction to remove a trustee did not arise and a 'real risk' of failure or refusal to exercise powers at the request of an eligible object did not give jurisdiction (ground 1);
(b)the trial judge erred in fact by failing to find that Washburn gave real and genuine consideration to the exercise of its powers to distribute income in Mae's favour in 2016 (ground 2); and
(c)the trial judge erred in fact by inferring that Philip as controller of Washburn 'had a closed mind' with respect to the trustee's discretion to consider distributing income or capital from the Washburn Trust to Mae and that there was a 'real risk' on that basis that Mae's interests would not receive genuine consideration by Washburn (ground 3).
2.Grounds 4 - 8 challenge findings made by the trial judge as to Philip's conduct as trustee or controller of trustees of the relevant trusts. These challenges are directed to impugning the orders made removing Rectangular and Washburn as trustees of the respective trusts.
3.Grounds 9 - 10 challenge the orders appointing Mae as trustee of the Washburn Trust and Marc's Testamentary Trust. Ground 9 contends that the trial judge erred in having regard to the fact that no party had proposed an alternative trustee. This is on the basis that the court had previously indicated that it would receive evidence and submissions concerning the appointment of an independent trustee after it had determined whether the corporate trustees should be removed and whether Mae should be appointed. Ground 10 contends that the trial judge erred in not regarding Mae's agreement with the litigation funder as creating a conflict of interest and duty if she were appointed trustee such that it was not appropriate to appoint her trustee.
4.Ground 11 challenges the finding, referred to at [21] above, that Rectangular was not validly appointed to replace Ongold as trustee of Marc's Testamentary Trust until 15 March 2020.
5.Ground 12 in effect contends that the trial judge erred in basing his conclusion that Rectangular should be removed as trustee of Marc's Testamentary Trust on findings made as to Philip's statements in respect of the Washburn Trust.
Estate Appeal
In the Estate Appeal, the appellants advance a single ground of appeal challenging the removal of Philip as executor of Marc's will, generally by adopting grounds advanced in the Trust Appeal. Alternatively, they contend that the trial judge erred in regarding conduct by Philip in his capacity as executor of Marc's estate or in his other capacities as empowering the court to revoke the grant of probate.
Also in the Estate Appeal, Mae has filed a notice of contention that the trial judge's decision, that the grant of probate of Marc's estate in favour of Philip should be revoked, should be upheld on grounds which broadly concern:
1.Mutual ill feeling, resentment and distrust that Philip and Mae hold towards the other, for which Philip bore responsibility through his behaviour towards Mae after May 2016.
2 - 5 & 7 - 8.Various aspects of Philip's conduct of the primary proceedings, which were incompatible with the approach reasonably expected of an executor.
6.Philip making false statements in an affidavit supporting his petition to the Federal Circuit Court for orders that Marc's estate be administered in bankruptcy.
9.Philip's breaches of duty as executor the subject of the Estate Cross-appeal.
Estate Cross-appeal
Mae cross-appeals against the orders made in the Estate Action.[17] Ground 2 of the cross-appeal contends that the trial judge erred in failing to find that Philip acted in breach of duty in 'accepting' that Marc's estate was liable to Ongold in the sum of $1,280,714. Ground 3 challenges a finding that Philip should be relieved of liability under s 75 of the Trustees Act 1962 (WA).
Indemnity Appeal
[17] Ground 1 was abandoned at the hearing of the appeal: appeal ts 328.
In broad terms, the appellants in the Indemnity Appeal challenge orders 9 and 10 made in the Trust Action on 23 December 2021, which:
1.declare that the trustee companies are not entitled to be indemnified for their own costs (or any other defendant's costs) out of the assets of the respective trusts; and
2.order the trustee companies to pay to their respective trusts any amounts that they have paid in respect of such legal costs.
We will deal with the grounds of the Indemnity Appeal when considering that appeal.
The trial judge's assessment of the evidence of Philip and Mae
The judge found that Mae gave her evidence in a careful and thoughtful manner. Whilst some of her evidence reflected the fallibility of human memory and may have been affected or altered by unconscious bias, she was a generally credible and reliable witness who sought to give truthful answers.[18]
[18] Primary decision [207], [238] - [239].
The judge generally preferred Mae's evidence where it conflicted with Philip's.[19] In relation to Philip's evidence, his Honour found that:
1.Philip's evidence in material respects was unconvincing, unsatisfactory, unreliable and/or the product of reconstruction;[20]
2.Philip initially denied, but ultimately conceded, that he knew that his 'settlement offer' involved Mae relinquishing her interests;[21] and
3.Philip at times obfuscated and his evidence was evasive and self‑serving, including that, at times, he was 'careful' to give evidence that supported his case.[22]
[19] Primary decision [283].
[20] Primary decision [263], [265], [266], [270], [277] - [279], [281], [373], [387].
[21] Primary decision [258].
[22] Primary decision [282].
Ultimately, his Honour assessed the evidence having regard to the documentary evidence, the surrounding circumstances, the inherent probabilities and his impressions of the witnesses.[23]
[23] Primary decision [239], [283].
Primary facts found by the trial judge
The trial judge made detailed findings as to the events leading to the dispute he was required to resolve. The following is a chronological statement of the primary facts found by the trial judge, supplemented at some points by reference to uncontentious documents.
Cardaci family business structure
The Cardaci group of companies is known as the CFC Group. The CFC Group consists of four main businesses operated by: Centurion Transport Group (Centurion), Construction Equipment Australia Group (CEA), Cape Crushing and Earthmoving and Underground Services Australia Group, and Birchmead Property Group (Birchmead).[24]
[24] Primary decision [26] - [30].
Broadly, the CFC Group business was started by Frank and Carl in the 1970s. Philip started working in the family business in 1990 and was put in charge of CFC Holdings (the business now known as CEA). At that time, CFC Holdings had one permanent employee - Kaye Bailey. Marc started working in the family business in 1991. Initially, Marc worked with Frank and Carl at Centurion. At that time, Philip and Marc were just employees.[25]
[25] Primary decision [31] - [33].
In about 1996, Frank and Carl's interests in CFC Holdings were purchased by Contura. At that time, the shareholders of Contura were the trustees of the four discretionary trusts of Frank, Carl, Philip and Marc, which were established at that time. The four discretionary trusts were established at that time through Brentnalls Pty Ltd (Brentnalls), a chartered accounting firm which acted as Philip and Marc's accountants and financial advisors. The trusts were: the Alexandra Trust (which was controlled by Frank), the Sterling Trust (which was controlled by Carl), the TF Family Trust (which was controlled by Philip), and the Washburn Trust of which Marc was initially the trustee, appointor, guardian and a beneficiary. Also, around that time, four companies were established (through Brentnalls) each as a corporate beneficiary of one of the trusts. In Marc's case that was Powercity.[26]
The Washburn Trust established in 1995
[26] Primary decision [34] - [35].
The Washburn Trust was established by deed dated 6 September 1995 (Washburn Trust Deed).[27] The children of Marc were specified beneficiaries. Marc and a range of relatives, including his brothers, sisters and widow, were general beneficiaries. Also included in the broad range of general beneficiaries were any corporation of which Marc or another beneficiary was a shareholder or (in the case of Marc) a director and any trust under which a beneficiary had an interest.[28] Therefore, the beneficiaries included (as well as Marc) Powercity and Duporte, in each of which Marc was a director and shareholder. They also included Philip and his trust.[29]
[27] The Washburn Trust Deed appears at Green AB 2. References to appeal books in 'Primary facts found by the trial judge' are to appeal books filed in the Trust Appeal. Otherwise, references to appeal books are to appeal books filed in the relevant appeal the subject of consideration.
[28] Schedule to the Washburn Trust Deed (Green AB 29).
[29] Primary decision [43].
The Washburn Trust Deed provides, in effect, that the trustee may distribute any part of the income in an accounting period (ending on 30 June in a year) or (with the consent of the guardian) capital of the trust fund to any beneficiary for their own use or for the maintenance education advancement or benefit of the beneficiary.[30]
CEFS
[30] Clauses 1.1, 3.1, 6.1, 11.3 and 11.7.2.1 of the Washburn Trust Deed.
CEFS was a dormant company that sat outside the CFC Group before it was used to act as a bank. It subsequently acted as a bank in that all earnings of the respective trusts would be lent to CEFS. Ms Bailey was responsible for the day‑to‑day operations of CEFS, including all receipts and payments, calculating and paying interest and doing the day‑to‑day accounts and bookkeeping.[31]
[31] Primary decision [39] - [40]; appeal ts 26 - 27.
The trial judge appeared to accept Philip's evidence as to the informal operation of CEFS as follows. If Frank, Carl, Philip or Marc wanted funds from CEFS, they would usually email or call Ms Bailey and direct Ms Bailey to transfer the funds. Ms Bailey then gave effect to the payment instruction so long as that shareholder had money in a CEFS loan account. There was no requirement for a shareholder or Ms Bailey to get authorisation from any other shareholder. Ms Bailey would send Frank, Carl, Philip and Marc statements each month setting out their drawings and interest accrued on the loan account for the month. What each shareholder got from Ms Bailey was their own statement, not anyone else's, so as to keep each trust's interest private.[32] Philip said of the process, 'we took [money] out as drawings or loans and then worked it out at the end [of the financial year]'.[33]
[32] Primary decision [41].
[33] Trial ts 2046.
Ms Bailey maintained ledgers described as loan accounts reflecting, relevantly in relation to Marc, the amounts loaned to CEFS by each of the Washburn Trust, Marc's Testamentary Trust and Powercity, and the amounts drawn down against each loan account.[34]
[34] Exhibit 1045 (Green AB 294 - 297); appeal ts 26 ‑ 27.
During Marc's lifetime, when Marc needed money he would contact Ms Bailey, who would make the payment from CEFS and drawdown the money standing to the credit of (relevantly) the Washburn Trust. Ms Bailey recorded the payment in an account in the nature of a clearing or suspense account that recorded a transaction on a temporary basis until it was determined to post it to a permanent account. This was a bookkeeping entry, not a loan agreement.[35]
Loans by Powercity to Marc
[35] Primary decision [468].
Powercity made payments to Marc which were recorded and treated in the Powercity accounts as loans to Marc. These loans were repaid by a process whereby dividends were declared by Powercity to the Washburn Trust (which held 99.9% of the shares in Powercity). The dividends were then distributed by the trust to Marc for the purpose of repaying the loans, or the loan repayment instalments required to comply with the relevant provisions of pt 3 div 7A of the Income Tax Assessment Act 1936 (Cth) (div 7A). This arrangement minimised the tax otherwise payable.[36]
Marc moves to Melbourne in 2003
[36] Primary decision [439].
In about 2003, CFC Holdings had acquired the assets of CEA. CEA's headquarters was in Melbourne and it operated in Victoria, New South Wales and Queensland. In 2003, Marc moved to Melbourne to be the family representative on the east coast and manage the parts and service business for CEA.[37]
[37] Primary decision [37].
Duporte is a company through which, by their discretionary trusts, Philip and Marc conducted joint property investments, commencing in or about 2003. In 2005 or 2006, Duporte purchased the apartment in Melbourne into which Marc moved and lived (Marc's apartment).[38]
Philip and Marc purchased Centurion from Frank and Carl in 2005
[38] Primary decision [38].
Philip and Marc purchased Centurion from Frank and Carl through Contura, with Frank and Carl each maintaining a 25% interest in Contura through their trusts. The transaction was completed in about 2005. Frank and Carl then retired from the businesses.[39]
[39] Primary decision [36].
In 2007, Philip was appointed executive chairman of the CFC Group and Marc was appointed chief executive officer of the CFC Group. As the executive chairman, Philip had oversight of all the businesses of the CFC Group.[40]
The relationship between Marc and Mae in 2011 ‑ 2012
[40] Primary decision [42].
Marc met Mae at a charity party hosted by Marc at his Melbourne apartment on 25 February 2011. At that time, Mae was employed as a graduate lawyer with international law firm Freehills (later Herbert Smith Freehills or HSF) in Melbourne. Mae moved into Marc's apartment within a month of their initial meeting.[41]
[41] Primary decision [17], [58].
Marc and Mae became engaged in December 2011.[42]
[42] Primary decision [62].
Between 5 and 23 September 2012, Marc executed a deed of appointment that had the effect of appointing Mae as a member of the general class of beneficiaries of the Washburn Trust. The appointment was made in contemplation of their marriage.[43]
[43] Primary decision [66], [322].
Marc and Mae married in September 2012.[44]
[44] Primary decision [67].
In November 2012, Marc and Mae moved to Perth. They moved to Marc's house (which he bought in his own name in early 2011) in Trigg. Mae transferred to HSF's Perth office. She was then a fourth‑year lawyer.[45]
[45] Primary decision [59], [68].
After their marriage, Marc arranged joint bank accounts and credit cards for Mae. During their relationship Marc paid for everything they needed or wanted. Marc gave Mae many expensive gifts. Mae understood that Marc accessed money by directing Ms Bailey to pay certain amounts to Marc by Marc communicating about it with his accountants, Brentnalls. Mae believed that Marc followed Brentnalls' advice so that he would pay the least amount of tax. Mae believed she signed documents to receive income or dividend distributions to allow Marc to pay the least amount of tax and to manage their expenses. She did not know the details of these distributions. She left all business and financial matters to Marc and his advisors. Mae did not actually receive any cash distributions.[46]
Marc's will and variation of Washburn Trust on 21 December 2012
[46] Primary decision [69].
On 21 December 2012, Marc executed a deed of variation of the Washburn Trust, a new will and a Memorandum of Wishes.[47]
[47] Primary decision [70].
By an instrument dated 21 December 2012 (Deed of Variation), Marc as trustee, with the consent of Marc as guardian, varied, or purported to vary, the Washburn Trust Deed to amend the descriptions of guardian and appointor in the schedule to the deed of trust. The definitions were substituted by provisions relevantly to the effect that the guardian and appointor is Philip and upon the death, legal incapacity or bankruptcy of Philip then Marc and upon the death, legal incapacity or bankruptcy of the last of Philip and Marc, then Mae. The Deed of Variation stated that it was made pursuant to the power of variation in cl 29 of the deed of trust.[48]
[48] Primary decision [636].
Philip was appointed the executor and trustee of Marc's will. Marc's will gave all of his property to his trustees to establish a trust for Mae. The Memorandum of Wishes was addressed to the trustee, appointor and guardian of the Washburn Trust.[49]
[49] Primary decision [70] - [73].
The Memorandum of Wishes was in the following terms:[50]
It is my express wish that:
'The Trustee of the Trust pay all income and capital received by the Trust from time to time to my wife Mae Cardaci (Mae), after making suitable provision for tax and other expenses, provided that if Mae shall predecease me, then the Trustee of the Trust shall pay all income and capital received by the Trust from time to time to such of my children as shall survive me and if more than one, then in equal shares.'
I declare that it is my wish for those charged with the Administration of my affairs to conduct the affairs of the Trust to give effect to my expressed intentions above in an equitable and yet considered manner and bearing in mind the interests of the beneficiaries of the trust.
Marc's cancer diagnosis in January 2013
[50] Primary decision [324]; see also exhibit 1585 (Green AB 494).
In January 2013, Marc was diagnosed with cancer of the oesophagus, and commenced chemotherapy in February 2013. Marc and Mae made unsuccessful attempts for Mae to become pregnant and Marc had his sperm frozen before he commenced chemotherapy and again later.[51]
[51] Primary decision [74].
During the times when Marc was not in hospital or undergoing active treatment, Marc and Mae travelled through Europe and to Singapore and Melbourne. They travelled business class and stayed in four or five‑star hotels. Money was no restriction. They did whatever activity they wanted.[52]
[52] Primary decision [75].
HSF allowed Mae to take days and weeks off work when Marc was in hospital, the days when he was receiving treatment or recovery or any time his health was not strong.[53]
[53] Primary decision [76].
Marc initially responded well to chemotherapy. However, in late 2013 he relapsed and required hospitalisation. In January 2014, Mae ceased working with HSF and took extended leave without pay.[54]
Death of Frank in January 2014
[54] Primary decision [78].
After a lengthy illness, Frank died on 6 January 2014.[55]
Marc's treatment in January - March 2014
[55] Primary decision [77].
From January to March 2014, Marc underwent further chemotherapy and radiotherapy, but his condition did not significantly improve. From late 2014, he was heavily reliant on Mae for everyday tasks and care.[56]
Contura Shareholders Agreement
[56] Primary decision [79].
Washburn entered into the Contura Shareholders Agreement on 19 November 2014.[57]
Death of Grace in November 2014
[57] Primary decision [451]; see exhibit 1540.
Grace died suddenly and unexpectedly on 20 November 2014.[58]
[58] Primary decision [80].
By her will Grace appointed Philip, Marc and Angela as her executors. Grace's will established three testamentary trusts, one for each of her children. Marc was the trustee of Marc's Testamentary Trust.[59]
[59] Primary decision [81], [598].
Marc was the primary beneficiary under Marc's Testamentary Trust and Philip and Angela were the primary beneficiaries under the other two trusts respectively. The general class of beneficiaries of Marc's Testamentary Trust were Marc's children, his spouse, other persons in various degrees of relationship with Marc, certain education institutions, corporations in which Marc was an officer or shareholder or had a beneficial interest, trustees of any trust in which Marc had any beneficial interest and associated persons.[60]
Purchase of Shimmer in November 2014 and the Duporte Loan
[60] Primary decision [82].
On 13 November 2014, Marc purchased a luxury boat named Shimmer. Marc borrowed funds from Duporte to purchase the boat. The Duporte balance sheet for the financial year ended 30 June 2015 recorded a loan to Marc in the sum of $1,280,714 (Duporte Loan).[61]
Discussions about the establishment of a foundation for Marc in 2015
[61] Primary decision [84].
In 2015, Marc said to Mae that he would like to start a foundation that would help people who were affected by cancer. Marc and Mae discussed helping people to be able to pay for expensive cancer treatments and to assist their families by substituting an income to enable couples to not to have to continue working during treatment and to go on a family holiday. This was something Marc wanted to do during his lifetime.[62]
[62] Primary decision [330].
Marc said to Mae that the funds would come from the Washburn Trust and that Marc and Mae would set up and run the foundation. Mae asked Marc whether starting a foundation meant that they would lose their lifestyle. Marc smiled and said:[63]
No, it's simply where we would like some of our future wealth to go.
Appointment of Ongold as trustee of Marc's Testamentary Trust in 2015
[63] Primary decision [331].
By deed dated 31 August 2015, Marc retired as trustee and appointed Ongold to be trustee of Marc's Testamentary Trust. At the time of his death Marc was the sole director and shareholder of Ongold.[64]
Receipt of funds from Grace's estate
[64] Primary decision [598].
On 26 October 2015, Ongold's CEFS loan account received $1,566,900 from Grace's estate.[65]
Purchase of Watermans Bay property in late 2015
[65] Primary decision [88].
Marc arranged for the purchase of a new property at Watermans Bay in Mae's name. On 22 September 2015, Mae entered into a written contract to purchase the property in Watermans Bay. Marc told Mae the house was for her. Marc intended to pay the purchase price as a gift to Mae.[66]
[66] Primary decision [90].
Marc told Mae that he would use the proceeds from the sale of his Trigg property towards the purchase of the Watermans Bay property. Marc requested Ms Bailey pay $50,000 for the deposit. Marc and Mae selected furniture which cost hundreds of thousands of dollars. Mae had no means of paying for the furniture. Marc intended to pay for the furniture as a gift to Mae.[67]
[67] Primary decision [91].
The CEFS transaction statement for the Washburn Trust shows a drawing of $50,000 for a deposit on the Watermans Bay property on 24 September 2015.[68]
[68] Exhibit 1045 (Green AB 294).
On 1 October 2015, Marc emailed Mr Tony Monisse of Brentnalls:[69]
Today [I] may be going in for an operation today which may be life or death. Could you please ensure that if death does occur Mae['s] entitlement to my [s]perm is reflected in my will and that [I] am buried with my mother and father. Hopefully everything goes ok but [I] do want this to be reflected in my will. It will be Mae's responsibility to start up a foundation to reflect my legacy to my family and the greater community.
[69] Primary decision [333].
On 9 October 2015, Mr Monisse emailed Philip stating that he had instructed Taylor Smart lawyers to update Marc's will 'except for the setup of the foundation' and suggesting that Philip obtain further instructions from Marc on the additional information required to set up the foundation.[70]
[70] Primary decision [334] ‑ [335].
The CEFS transaction statement for the Washburn Trust shows a drawing of $57,000 as a deposit for furniture on 26 October 2015.[71]
[71] Exhibit 1045 (Green AB 294).
The funds that were ultimately used for the repayment of the Duporte Loan were received from Grace's estate by Marc's Testamentary Trust on 26 October 2015.[72]
[72] Primary decision [416].
A PAYG tax instalment of $11,530 was made for Mae from the Washburn Trust's CEFS loan account on 29 October 2015.[73]
[73] Exhibit 1045 (Green AB 294).
On 5 November 2015, Marc deposited $1.8 million into Marc and Mae's joint bank account. The money was the proceeds from the sale of Marc's Trigg property.[74]
Death of Marc on 7 November 2015
[74] Primary decision [95].
Marc died on 7 November 2015. Marc was admitted to Sir Charles Gairdner Hospital and subsequently transferred to St John of God Hospital.[75]
[75] Primary decision [96].
Mae arranged for Marc to sign his last will on the day of his death. The new will was the same as Marc's previous will with the additions that it declared Marc's wish that following his death his sperm be donated and Mae be entitled to use it as she wishes and that he wished to be buried with his parents.[76] At the time of signing his final will on the day of his death, Marc said that it was Mae's responsibility to set up and run a foundation.[77]
[76] Primary decision [97].
[77] Primary decision [338].
Mae and Marc were living together in a caring relationship at the time of Marc's death on 7 November 2015.[78]
[78] Primary decision [322].
At the time of his death, Marc's wishes in relation to the distribution of income and capital received by the Washburn Trust remained as set out in his Memorandum of Wishes.[79]
[79] Primary decision [342].
Marc wanted him and Mae to establish the foundation during Marc's lifetime. Marc did not want or ask Philip to establish the foundation. Marc intended to provide funds to the foundation from his wealth in the Washburn Trust. Marc did not intend that all or a majority of his income from or in the Washburn Trust would be applied to the foundation. He intended that during his lifetime, it would not diminish the lifestyle enjoyed by him and Mae; the foundation was 'simply where he would like some of [their] future wealth to go'.[80]
[80] Primary decision [339].
At the date of his death, Marc had outstanding loans of $1,614,153 to Powercity.[81]
Duporte Payment on 10 November 2015
[81] Primary decision [439].
The history of the Duporte Payment is considered in more detail in [373] ‑ [394] below. At this point, it is convenient to note the following findings.
Philip became the director of Ongold on 7 November 2015.[82] On 10 November 2015, Ms Bailey transferred $1,280,714 from Ongold's CEFS loan account to Duporte in relation to the payment of the loan owed by Marc's estate to Duporte.[83] This was the Duporte Payment.
[82] Primary decision [421].
[83] Primary decision [89], [409].
There was no evidence that Marc requested or instructed Ms Bailey to cause Ongold to pay $1,280,714 to Duporte after his death to discharge the debt owing by his estate. Ms Bailey made the payment from Marc's Testamentary Trust on 10 November 2015 without the authority of Ongold as trustee of Marc's Testamentary Trust.[84]
[84] Primary decision [420].
Nor was there any evidence that Philip, in his capacity as executor of Marc's estate, had requested that the payment be made.[85]
[85] Primary decision [417], [427].
Philip became aware of the payment a short time after it was made. He decided to let the payment stand rather than reverse it. Philip's action, as controller of Ongold, the trustee of Marc's Testamentary Trust, ratified or approved the unauthorised payment made by Ms Bailey on 10 November 2015.[86]
Events following Marc's death: 11 November 2015 - 15 March 2016
[86] Primary decision [429].
On 11 and 12 November 2015, Mae transferred $1,940,000 from Marc and Mae's joint bank account to Mae's personal bank account for the settlement of the Watermans Bay property.[87]
[87] Primary decision [99].
On 19 November 2015, at the Watermans Bay property, Philip had a discussion with Mae about finances. Philip said to Mae that she can take up to $180,000 without incurring any tax. Philip said that the bills for the boat Shimmer of $10,000 a month would be paid from Washburn dividends. Mae asked Philip about the Watermans Bay property. Philip said to Mae not to worry, that she could access the funds when the time came, and she should tell him how much she needs. Philip asked if Mae had access to the proceeds from the sale of the Trigg house. Mae told Philip that she did, that Marc had transferred $1.8 million to their joint account a few days before he passed away.[88]
[88] Primary decision [102], [487].
On 24 December 2015, Philip executed two deeds which had the effect of appointing Washburn as trustee of the Washburn Trust and Philip as appointor and guardian of that trust.[89]
[89] Primary decision [104].
On 17 January 2016, Mae sent an email to Ms Bailey and Philip attaching an invoice from Ultimo Interiors for furniture for the new house, stating that she needed to pay a progress payment of $50,000. On 19 January 2016, Ms Bailey sent an email to Mae confirming that $50,000 was transferred to Ultimo Interiors.[90] Ongold's CEFS loan account shows a drawing of $50,000 paid to Ultimo Interiors on that day.[91] The invoice was issued by Ultimo Interiors to Marc and Mae.[92]
[90] Primary decision [106].
[91] Exhibit 1045 (Green AB 295).
[92] Primary decision [475].
On 11 February 2016, Ms Bailey caused a payment of $1,500,633.02 to be made by direct debit from Ongold's CEFS loan account to the bank account of Property Settlement Services.[93] The balance of the purchase price ($1,500,633) for the Watermans Bay property was paid to the vendor on 11 February and settlement occurred on 15 February 2016.[94]
[93] Primary decision [464], [475].
[94] Primary decision [109].
On 16 February 2016, Mr Smith sent Philip an email attaching a draft statement of assets and liabilities of Marc's estate as at 7 November 2015. The statement showed the liability of $1,280,714 as a loan from Duporte, for the purposes of a probate application.[95]
[95] Exhibits 1008 - 1009 (Green AB 285 ‑ 289).
On 19 February 2016, at Mae's request, Ms Bailey paid $93,304 to Ultimo Interiors for furniture for the Watermans Bay property.[96] The CEFS transaction account for Ongold shows a drawing of $93,304 paid to Ultimo Interiors on that day.[97]
[96] Primary decision [111], [464].
[97] Exhibit 1045 (Green AB 295).
On 24 February 2016, Ms Bailey paid $11,530 from Ongold's CEFS loan account to the Australian Taxation Office as Mae's December quarter PAYG tax instalment.[98]
[98] Primary decision [464].
On 6 and 8 March 2016, Mae sent emails to Philip which expressed concern as to the process for her to get funds required to pay significant expenses. On 11 March 2016, Ms Bailey caused $22,340 to be paid from Ongold's CEFS loan account to Ultimo Interiors for furniture for the Watermans Bay property.[99]
[99] Primary decision [112] - [113], [464].
On 15 March 2016, Mae emailed Philip asking if he was available that week to discuss financial matters, stating that she had some bills and did not have sufficient funds to pay them.[100] Also on 15 March 2016, $30,000 was transferred to Mae from Ongold's CEFS loan account.[101]
31 March 2016 meeting
[100] Primary decision [114].
[101] Primary decision [464].
On the morning of 31 March 2016, there was a meeting at Brentnalls' offices between Mae, Philip, Ms Bailey and Mr Smith. Philip opened the meeting by saying that they would be discussing:[102]
1.Marc's asset and liability position;
2.that his estate was in deficit;
3.some of the tax implications of loans that Marc had with Powercity;
4.Marc's Testamentary Trust; and
5.funds that had been withdrawn from Marc's Testamentary Trust since Marc's death.
[102] Primary decision [117].
Mae was given various documents during the meeting, including the 'March spreadsheet', which showed that the net assets of Marc's estate totalled $6,357,981.[103]
[103] Primary decision [118] - [121].
At the meeting, Mae repeated back what she understood had been discussed. She said, 'We have got the cash that is available in Ongold, which is liquid assets'. She then said:
[T]hen there is Marc's long service leave entitlements plus his superannuation, which they mentioned would come to [her], plus any liquid assets that were in Marc's Testamentary Trust, meaning what [Marc] would inherit from [Frank and Grace]. Also the Washburn Trust because that is where Marc kept all his business assets and his real wealth.
Nobody corrected her. Mae was told that Marc controlled his testamentary trust through Ongold, that she would be the shareholder in Ongold and that is how she would control the trust that would ultimately distribute to her.[104]
[104] Primary decision [122].
On the afternoon following the meeting, Ms Bailey emailed Mae that she had transferred $100,000 to Mae's account that day. The money transferred was from Marc's Testamentary Trust.[105]
25 April 2016 meeting
[105] Primary decision [125], [464].
On 25 April 2016, Mae and Philip met at the Wild Fig Cafe. Mae and Philip agreed that they spoke about opportunities for Mae to get into property investment. Mae said she told Philip that she had decided to sell the boat, Shimmer, and Philip said that was a good idea.[106]
[106] Primary decision [127].
On 27 April 2016, Ms Bailey paid $11,530 from Marc's Testamentary Trust to the Australian Taxation Office as Mae's March quarter PAYG tax instalment.[107]
Philip's attitude to Mae changes in April - May 2016
[107] Primary decision [464].
In about mid-April 2016, Mae began a romantic relationship with Sean Hughes.[108]
[108] Primary decision [129].
Learning that Mae was seeing someone else affected the way Philip regarded Mae's relationship with the Cardaci family. The way in which Philip regarded Mae, her relationship with the Cardaci family and the financial obligations of the family, including his control of Marc's estate, Marc's Testamentary Trust and the Washburn Trust, to Mae had changed by May 2016. Philip expressed that change as his belief that Mae had moved on and that she wanted financial independence. Philip's belief that Mae had moved on was based principally, if not exclusively, on Philip's knowledge or belief of Mae's relationship with Mr Hughes.[109]
18 May 2016 meeting
[109] Primary decision [129] - [137].
On 18 May 2016, Mae and Philip met at the Wild Fig Cafe.[110] At this meeting, Philip said to Mae words to the effect that he was the trustee of the Washburn Trust, that as trustee he would 'never' distribute anything to Mae from the Washburn Trust and that he would put all of Marc's wealth from the Washburn Trust into the foundation for Marc. Further, Philip said to Mae that that was what Marc intended.[111]
[110] Primary decision [139].
[111] Primary decision [140], [350].
Philip's state of mind at the 18 May 2016 meeting was that he would never distribute to Mae anything from the Washburn Trust.[112]
Events following 18 May 2016 meeting to late June 2016
[112] Primary decision [357].
On 24 May 2016, Philip executed an affidavit in support of his application for a grant of probate of Marc's estate. Included in that affidavit was a statement of assets and liabilities of Marc's estate as at the date of his death on 7 November 2015. That statement did not reflect the fact that Marc's Testamentary Trust had paid out Marc's liability to Duporte because the statement of assets and liabilities reflected the position as at the date of Marc's death.[113] In his affidavit, Philip swore that Marc's estate had assets of $2,213,451 and liabilities of $3,007,555. The principal liabilities were debts to Powercity of $1,397,245 and Duporte of $1,280,714.[114]
[113] Primary decision [144].
[114] Primary decision [151].
On 30 May 2016, Mae emailed Ms Bailey and asked that she transfer $100,000 to Mae's bank account. Ms Bailey replied the following day, indicating that she had transferred the funds to Mae's bank account. The money transferred was from Marc's Testamentary Trust.[115]
[115] Primary decision [145], [464].
On 1 June 2016, Mae resigned from her employment with HSF. She wanted to pursue a career in property development or investment rather than as a lawyer.[116]
[116] Primary decision [146].
On 13 June 2016, Mae emailed Philip confirming that she was negotiating with an interested party for the sale of Shimmer. Philip replied confirming that Mae could proceed to sell Shimmer. On 15 June 2016, Mae sold Shimmer for $1,215,000.[117] By email of 27 June 2016, Philip said to Mae that the sale could go through, but the transfer could not be effected until probate of Marc's will was obtained and the funds from the sale should be put into an account handled by Ms Bailey.[118]
[117] Primary decision [147].
[118] Primary decision [150].
On 28 June 2016, Philip was advised that, on 22 June 2016, he had been granted probate of Marc's will. Philip informed Mae that probate had been granted.[119]
[119] Primary decision [151].
On 30 June 2016, in response to a request by Mae for an updated position of Ongold, Ms Bailey emailed Mae attaching a statement for Ongold's loan account with CEFS, which showed a loan balance of $405,703.71 as being 'available for drawdown'. In the covering email, Ms Bailey stated:
Re these funds, they are actually being borrowed by yourself until finalisation of Marc's Estate.
That email was the first time that Mae was informed that the amounts paid to her from Marc's Testamentary Trust were loans.[120]
Washburn Trust and Marc's Testamentary Trust 2016 distributions: 30 June 2016
[120] Primary decision [152] - [153], [479] ‑ [480].
In the 2016 financial year, the Washburn Trust made a net profit of $622,916. By written resolution dated 30 June 2016, Philip, as the director of Washburn as trustee for the Washburn Trust, resolved to distribute $345,000 to Marc's estate, $10,000 to another trust and $267,916 to Powercity.[121]
[121] Primary decision [154].
In the 2016 financial year, Marc's Testamentary Trust made a net profit of $84,167. By resolution dated 30 June 2016, Philip, as the sole director of Ongold, the trustee of Marc's Testamentary Trust, resolved to distribute the whole of the trust income to Powercity.[122]
13 July 2016 meeting and 'settlement offer' by Philip
[122] Primary decision [155].
In early July 2016, Philip prepared a spreadsheet entitled 'List of Marc Cardaci's assets & liabilities (date of death = 7/11/2015)' (July spreadsheet). The spreadsheet, which described a number of advances made for Mae's benefit as loans, showed a liability by Mae to various entities of $4,292,888. The only reference to Marc's Testamentary Trust is a loan of $205,000 to Ongold as trustee of Marc's Testamentary Trust which is listed as a liability. There is no reference to the Washburn Trust, Duporte or Powercity in the assets.[123]
[123] Primary decision [157] - [159]. The July spreadsheet was exhibit 1355 (Green AB 373).
On 13 July 2016, Mae and Philip met at the Wild Fig Cafe. Mae opened the meeting by saying she was pleased with the price she had got for Shimmer. Philip agreed it was a good price and Mae asked Philip how to access those funds. Philip gave Mae the July spreadsheet and they discussed the figures on the July spreadsheet.[124]
[124] Primary decision [160], [374].
At the 13 July 2016 meeting, Philip said to Mae words to the effect that he would only distribute from the Washburn Trust to a foundation to be established, and implicitly not to Mae.[125]
[125] Primary decision [384].
During the 13 July 2016 meeting, Philip made what he described as a 'settlement offer', under which Mae would receive $2 million cash.[126] Philip's offer was, in effect, to 'buy out' Mae's interest in Marc's estate, Marc's Testamentary Trust and the Washburn Trust. It was an essential part of his offer that Mae relinquish her interests in the estate and those trusts.[127] Philip's offer was that Mae would retain the assets and be discharged from the liabilities listed in the 'Loan Mae Cardaci' column of the July spreadsheet, totalling $4,292,888, and in addition receive $2 million cash.[128] Philip says that he suggested to Mae that she needed to get independent legal and financial advice about what he had put to her.[129]
[126] Primary decision [162].
[127] Primary decision [397], [399].
[128] Primary decision [732].
[129] Primary decision [379], [381].
Philip made the offer both in his capacity as controller of the trustees of Marc's Testamentary Trust and the Washburn Trust, in his executorial capacity and in his personal capacity.[130] Philip made the offer in relation to Mae's rights in respect of Marc's estate, Marc's Testamentary Trust and the Washburn Trust. Philip intended that Mae would relinquish her interests in the estate and the trusts. Philip in his capacity as controller of the executor of Marc's estate and the trustees of the Washburn Trust and Marc's Testamentary Trust would be parties to the settlement deed.[131]
[130] Primary decision [460], [730].
[131] Primary decision [399].
Philip's offer could not be segregated from his position as controller of the trustee of the Washburn Trust. It was made in the context that he had informed Mae that he would never distribute any trust funds to Mae.[132] In making his offer Philip used his position as the controller of the trustee of the Washburn Trust and Marc's Testamentary Trust and executor of Marc's estate to attempt to buy out Mae's interest in the trusts. Philip did not distinguish between his personal capacity and his capacity as controller of the trusts.[133] Philip did not differentiate between the assets of Marc's estate, the Washburn Trust, Marc's Testamentary Trust, and his own funds. He treated them as all under his control and made his offer on the basis that he could transfer the assets to Mae and relieve her of liabilities by his control of each of those entities as well as his own funds.[134]
[132] Primary decision [400].
[133] Primary decision [405].
[134] Primary decision [734].
Philip's offer was neither a necessary nor obvious way to ensure that Mae was properly provided for. The obvious way for Philip to provide for Mae was out of the trusts. Mae had no need for, and had not asked for, any lump sum in lieu of future distributions from the trusts. Philip did not consider ensuring that Mae was adequately provided for by receiving funds from the Washburn Trust. Nor did Philip provide Mae with all the information that might reasonably bear upon her decision whether to accept the offer, such as the value of the assets of the Washburn Trust.[135]
[135] Primary decision [406], [460].
The reason Philip made his offer 'to buy Mae out' of Marc's estate, Marc's Testamentary Trust, the Washburn Trust and any other Cardaci family trusts was so that he (Philip), as controller of the trustees of those trusts, could administer those trusts and make any distributions from those trusts without having to give any consideration to the needs or interests of Mae.[136]
[136] Primary decision [407].
Philip's offer of 13 July 2016 was premised on valuing Mae's interest in the Washburn Trust at nothing. Philip viewed the value of Mae's interest in the Washburn Trust at nothing because he had decided that he would never distribute to Mae anything from the Washburn Trust. Philip had that state of mind between the 18 May 2016 meeting and the 13 July 2016 meeting.[137]
Subsequent correspondence in July 2016
[137] Primary decision [357].
On 13 July 2016, Ms Bailey had collected from Taylor Smart (the lawyers who had prepared Marc's wills and other documents) documents including Marc's Memorandum of Wishes. Ms Bailey emailed copies of the documents to Philip on 13 July 2016, after Philip's meeting with Mae that day.[138]
[138] Primary decision [168].
On 14 July 2016, Mae sent an email to Ms Bailey in which she referred to her meeting the previous day with Philip, said that Philip had mentioned that the cash is still available in Ongold and requested that the remainder be transferred to her. Philip replied to that email stating, 'Transferring the whole lot while we are still finalising the estate is a problem' but he would not 'leave [her] in the lurch' from a day‑to‑day basis and if she needed any funds to let Ms Bailey know what she needed for the next month.[139]
[139] Primary decision [163]. The emails appear at exhibit 1378 (Green AB 383 - 384).
Clause 16 of the Washburn Trust Deed
Clause 16 of the Washburn Trust Deed relevantly provides:[636]
The Trustee shall be entitled to be indemnified out of the assets for the time being comprising the Trust Fund against liabilities incurred by the Trustee in the execution or attempted execution or as a consequence of the failure to exercise any of the trusts authorities powers and discretions hereof or by virtue of being the Trustee hereof[.]
[636] Exhibit 2 (Green AB 23).
The trial judge, in effect, identified two limbs to cl 16 of the Washburn Trust Deed. The trustee was entitled to be indemnified out of the assets of the trust against liabilities:[637]
1.incurred by the trustee:
(a)in the execution or attempted execution of any of the trusts, authorities, powers and discretions of the trust deed; or
(b) as a consequence of the failure to exercise any of the trusts, authorities, powers and discretions of the trust deed; or
2.incurred by the trustee by virtue of being the trustee of the trust deed.
[637] Supplementary decision [28].
The trial judge found that the costs incurred by Washburn in defending the Trust Action did not fall within the first limb of cl 16 for two reasons:[638]
1.Washburn's defending its removal as trustee was not the execution or attempted execution or a consequence of the failure to exercise any of the trusts, authorities, powers or discretions in the Washburn Trust Deed.
2.The defence of the Trust Action was not done in the execution or attempted execution or as a consequence of the failure to exercise any of the trusts, authorities, powers and discretions in the Washburn Trust Deed but was undertaken in the personal interest of Washburn's controller, Philip.
[638] Supplementary decision [31] - [34].
The trial judge found that the second limb of cl 16 did not apply because, where Washburn defended the proceedings in the personal interest of its controller, it did not incur the liability by virtue of being trustee.[639]
[639] Supplementary decision [35].
Ground 7 of the Indemnity Appeal contends that the trial judge erred in finding that Washburn was not entitled to rely on the indemnity in cl 16 of the Washburn Trust Deed. The particulars to the ground contend that:
To the extent that Washburn's liabilities for its costs and [Mae's] costs of these proceedings were incurred in the execution or attempted execution of its powers to deal with shares (in making the Contura Sale Agreement and Leone Shareholders Agreement) and its power to exercise of its distribution powers (in not taking into account relevant considerations) or as a consequence of the failure to exercise or give consideration to the exercise of its powers to distribute income in favour of [Mae], the primary judge should have found that Washburn was entitled to be indemnified for those costs pursuant to clause 16 of the Washburn Trust Deed.
Accordingly by ground 7, the appellants contend, in effect, that cl 16 of the Washburn Trust Deed applied 'to the extent that' the legal costs of the proceedings were incurred:[640]
1.in the execution or attempted execution of the trustee's powers to deal with shares in 'making' the Contura Sale Agreement and the Leone Shareholders Agreement;[641]
2.in the execution or attempted execution of the trustee's power to make distributions to Mae in certain pleaded respects; and
3.as a consequence of the trustee's failure to exercise or give consideration to the exercise of a distribution power in favour of Mae in certain pleaded respects.
[640] See also appellants' submissions, pars 49 - 50 (White AB 17).
[641] As to which, see, relevantly, primary decision [446], [454].
In support of this ground, the appellants referred to the power in cl 7.20 of the Washburn Trust Deed:[642]
To take such action as the Trustee shall think fit for the adequate protection of any part or parts of the Trust Fund and to do all such other things as may be incidental to the exercise of the powers and authorities conferred on the Trustee by this Deed.
[642] Appellants' submissions, par 48 (White AB 17); exhibit 2 (Green AB 17).
The costs of defending the proceedings in relation to the matters which led Mae to seek the removal of the trustee companies were not incurred in the execution or attempted execution of the trusts, authorities, powers or discretions under the Washburn Trust Deed. The trial judge properly focussed attention on the question of whether the defence of the proceedings, rather than the exercise of powers prior to the commencement of the Trust Action, involved the execution or attempted execution of any of the trusts, authorities, powers and discretions in the Washburn Trust Deed.
On one view, the reference to liabilities incurred by the trustee in the execution or attempted execution of the powers etc under the Washburn Trust Deed is a reference to liabilities properly and reasonably incurred in the execution or attempted execution of those powers etc. On that view, cl 16 of the Washburn Trust Deed relevantly would reflect the equitable rules explained at [568] - [577] above.
As the authorities there referred to illustrate, the defence of proceedings seeking the removal of a trustee may be an incident of the administration of the trust. However, in equity, whether that is so will depend on whether the trustee acted reasonably in defending the proceedings and the expenses were properly incurred for the benefit of the trust. On one view, the same considerations arise under cl 16 of the Washburn Trust Deed.
On that view, cl 16 of the Washburn Trust Deed would not apply on the basis that Washburn did not act reasonably in defending the Trust Action. On that view, costs incurred in its defence of the Trust Action would not be liabilities incurred by Washburn in the execution or attempted execution of the powers etc under the Washburn Trust Deed. That would be so irrespective of whether the defence was undertaken in the personal interest of Philip, as found by the trial judge.
It is not necessary to finally resolve whether the view summarised at [619] - [621] above should be accepted. That is because none of the matters on which the appellants rely, referred to at [616] above, was done in the execution or attempted execution of the trustee's powers or were failures to exercise discretions in the Washburn Trust Deed.
As to the first matter relied upon by the appellants (see [616.1] above), Washburn lost that issue at trial. The trial judge found that Washburn did not consider whether entry into the Leone Shareholders Agreement was in the best interests of the Washburn Trust and its beneficiaries.[643] That finding has been upheld on appeal (see [342] above). On the findings made by the trial judge which have not been successfully challenged in this appeal, the costs in defending that aspect of Mae's claim were not incurred in the execution, or attempted execution, of the trustee's power of investment to deal with shares. Rather, they were incurred in unsuccessfully defending a breach of trust claim.
[643] Primary decision [453].
The liability for legal costs incurred by Washburn to its own lawyers in the Trust Action was not, on the key issues on which the case was fought, incurred in or incidental to the execution or attempted execution of the Washburn Trust or the exercise of the powers and discretions conferred on the trustee. Those key issues were Philip's intention, expressly and impliedly communicated to Mae over several months, that Mae would 'never' receive a distribution from the Washburn Trust, and Philip's conduct in making what he described as his 'settlement offer'. The claims referred to at [616.2] and [616.3] above were, in substance, subsumed within the dispute over those key issues. Philip's communicated intention 'never' to make any distribution to Mae was an abrogation of the duties and responsibilities as trustee, as was his attempt to 'buy out' Mae with that threat hanging over her head. Nothing that Philip did in the defence of the litigation in these key respects on which Philip's removal was sought was in actual or attempted furtherance of the trusts. Nor was the defence in or incidental to the exercise of the powers and discretions conferred by the Washburn Trust Deed. The costs were not incurred in connection with the administration of the Washburn Trust. They were not costs incurred for the adequate protection of the trust fund (cf cl 7.20). There is nothing to indicate that Philip's interest in the defence of these key issues coincided with any interests of the Washburn Trust.
Nor were costs incurred in the unreasonable defence of the Trust Action incurred by virtue of Washburn being the trustee of the Washburn Trust. The costs were incurred not by reason of Washburn's status as trustee. Rather the costs were incurred because of Washburn's decisions to defend the proceedings for its removal and in its defence of the proceedings in a context in which, in substance, Washburn was representing and supporting Philip's interests.
For the above reasons, the indemnity provided for in cl 16 of the Washburn Trust Deed did not apply. Ground 7 of the Indemnity Appeal is not established.
We note that the same result was reached by the Victorian Court of Appeal on the construction of a similarly expressed clause (albeit not identical) in Wareham v Marsella [No 2].[644]
Clause 10 of the Washburn Trust Deed
[644] Wareham v Marsella [No 2] [2020] VSCA 118 [14] - [18].
Clause 10 of the Washburn Trust Deed provides:[645]
No Trustee shall be responsible for:
10.1any loss or damage occasioned to the Trust Fund or any part thereof or to any person by the exercise of any discretion or power hereby or by law conferred on the Trustee or by any alleged failure to exercise any such discretion or power; or
10.2any breach of duty or trust whatsoever
unless the same shall be proved to have been committed made or omitted in personal conscious and fraudulent bad faith by the Trustee charged to be so liable. All persons claiming any interest in the income or capital of the Trust Fund shall be deemed to take with notice of and subject to the protection hereby conferred on the Trustee.
[645] Exhibit 2 (Green AB 21).
The trial judge held that cl 10 is an exemption clause and is not a provision conferring on the trustee a right of indemnity against the trust. He therefore rejected Washburn's claim for an indemnity based on cl 10 of the Washburn Trust Deed.[646]
[646] Supplementary decision [37] ‑ [38].
Given the torrent of material with which the parties inundated the trial judge, it is understandable that the trial judge appears to have overlooked arguments as to whether the criteria in the last part of cl 10 applied. As noted previously, in the Trust Action, the appellants contended that, even if the use of Washburn Trust funds was a breach of trust, cl 10.2 protected Washburn from any liability to reimburse the trust for amounts improperly paid to its lawyers.[647] Mae contended that cl 10 did not apply because the breach of trust was proved to have been made in personal conscious and fraudulent bad faith by reason of Philip's evidence about certain events having been rejected.[648] The trial judge did not deal with these arguments in ordering Washburn to restore to the Washburn Trust the funds used to pay Washburn's legal costs.
[647] Defendants' costs and indemnity submissions filed 8 November 2021, pars 132 - 136 (Blue AB 404 - 405).
[648] Plaintiff's costs and indemnity submissions dated 29 October 2021, par 61 (White AB 349); see also trial ts 3522 - 3523.
The judge's failure to deal with the issue requires a consideration of ground 6 and Mae's notice of contention to the effect that Washburn's application of trust funds in defence of the removal suit was proved to have occurred with personal conscious and fraudulent bad faith on the part of Washburn as trustee.
Ground 6 of the Indemnity Appeal
Ground 6 of the Indemnity Appeal contends that the trial judge erred in finding that Washburn must restore to the Washburn Trust the trust funds used by it to pay the costs of these proceedings with interest. The appellants say:
Even if their exercise of the power of exoneration was a breach of trust, the primary judge made no finding to the effect that that breach was 'proved to have been committed made or omitted in personal conscious and fraudulent bad faith' by the Trustees within the meaning of cl 10 of the Washburn Trust Deed. In these circumstances the primary judge ought to have found that Washburn was not responsible for any loss or damage occasioned to the Washburn Trust in consequence of the breach[.] (original emphasis)
Mae conceded in her written submissions that the judge ought to have, but failed, to consider cl 10 of the Washburn Trust Deed (albeit that she relied on ground 3 of her notice of contention as to its operation in the circumstances found by the judge).[649] At the appeal hearing it was common ground between the parties that, on the proper construction of cl 10 of the Washburn Trust Deed, Washburn will only be liable to restore payments of its legal expenses to the extent that the payment of those funds was made 'in personal conscious and fraudulent bad faith'. Senior counsel for Mae maintained that concession at the hearing,[650] after questions from the court during the appellants' submissions expressing doubts as to whether cl 10 covered that circumstance.[651]
[649] First respondent's submissions, par 63 (White AB 58).
[650] Appeal ts 322 - 324.
[651] Appeal ts 149 - 155.
Subsequent to the hearing of the appeal, by application in an appeal filed on 18 April 2023, Mae sought to withdraw her concession as to ground 6. Written submissions were received from both the appellants and Mae. While the appellants opposed Mae being given leave to file further submissions, they were content to rely on supplementary written submissions and did not seek a further oral hearing if leave was granted.
Mae contended, in effect, that cl 10 of the Washburn Trust Deed, on its proper construction:
1.affords no relief for a trustee's obligation to account for trust property;
2.does not exclude a defaulting trustee's responsibility to restore trust property; and
3.does not diminish the trustee's obligation to effect restitution of trust property in specie.
Mae contends that the construction of cl 10 advanced by the appellants would destroy the irreducible core obligations owed by the trustee. Reference was made by Mae to various cases, including Armitage v Nurse,[652] Wilden Pty Ltd v Green,[653] Producers & General Finance Corporation Ltd v Dickson[654] and Plan B Trustees Ltd v Parker [No 2].[655]
Disposition of ground 6 of the Indemnity Appeal
[652] Armitage v Nurse [1998] Ch 241, 253.
[653] Wilden Pty Ltd v Green [2009] WASCA 38; (2009) 38 WAR 429 [163].
[654] Producers & General Finance Corporation Ltd v Dickson (1938) 40 WALR 34.
[655] Plan B Trustees Ltd v Parker [No 2] [2013] WASC 216; (2013) 11 ASTLR 242, 281.
The proper construction of cl 10 of the Washburn Trust Deed is a question of law for determination by the court rather than a matter of concession between the parties.[656] The prospect that the court might not accept Mae's concession was raised at the hearing of the appeal,[657] as were the court's concerns with the appellants' construction of cl 10 of the Washburn Trust Deed.[658] The appellants have had and taken the opportunity to respond orally and in writing to the court's concerns and the supplementary submissions on which Mae seeks leave to rely. The appellants having been placed on notice and been given the opportunity to advance submissions on the question, this court should determine the proper construction of cl 10 of the Washburn Trust Deed for itself. In these circumstances, while in general applications to make further submissions after the hearing of an appeal are to be actively discouraged, the supplementary written submissions should be received.
[656] Stephens v The Queen (1978) 139 CLR 315, 322, 336; Pantorno v The Queen (1989) 166 CLR 466, 473; Hickey v The State of Western Australia [2014] WASCA 32; (2014) 238 A Crim R 237 [61]; Papadimitriou v The Queen [2011] WASCA 140; (2011) 214 A Crim R 50 [82]; MR & RC Smith Pty Ltd v Wyatt [No 2] [2012] WASCA 110; (2012) Aust Torts Reports 82-108 [39].
[657] Appeal ts 324.
[658] Appeal ts 148 - 155, 323
In Wilden, this court considered the effect of a similar (albeit not identical) exclusion clause in a trust deed.[659] In observations pertinent to the present case, McLure JA (Pullin JA & Newnes AJA agreeing) said:[660]
The trial judge erred in concluding that any failure to comply with an obligation enforced by a court of equity constitutes bad faith. Bad faith connotes conscious wrongdoing that is knowingly or recklessly inconsistent with the interests of the beneficiaries. Further, the words 'conscious fraudulent bad faith' in cl 13.4 are intended to be conjunctive not disjunctive. The clear but clumsily stated intention is that there only be liability for actual fraud not its equitable equivalent. Actual fraud in this context means dishonesty or bad faith (Armitage (at 251)).
Equitable fraud is not part of the irreducible core of obligations identified in Armitage (at 250, 252, 253). However, it is accepted by the appellants and the respondents that cl 13.4 relates only to the trustees' personal liability for loss or damage not liability to have a relevant transaction set aside.
[659] The clause was in these terms: Wilden [156]
The Trustee hereby covenants to exercise all due diligence and vigilance in protecting the rights of Unit Holders provided that the Trustee shall not be responsible for ‑
(1) any loss or damage occasioned by the exercise of any discretion or power hereby or by law conferred on the Trustee or by failure to exercise any such discretion or power or by any error or forgetfulness whether of law or of fact;
(2) any breach of duty or trust whatsoever ‑
on the part of the Trustee or its legal or other advisers or generally unless it shall be provided to have been committed made or omitted in personal conscious fraudulent bad faith by the Trustee charged to be so liable.
[660] Wilden [162] - [163] (McLure JA), [251] (Pullin JA), [254] (Newnes AJA); see also Plan B Trustees [233] (Edelman J).
An exemption clause in a trust instrument such as cl 10 is to be construed in the context of the fiduciary principles applicable to the trust relationship. Also, it should not be construed more widely than its language on a fair reading requires.[661]
[661] Commissioner of Taxation (Cth) v Bargwanna [2012] HCA 11; (2012) 244 CLR 655 [13].
As Kirby P observed in Hartigan Nominees Pty Ltd v Rydge:[662]
[N]o matter how wide the trustee's discretion in the administration and application of a discretionary trust fund and even if in all or some respects the discretions are expressed in the deed as equivalent to those of an absolute owner of the trust fund, the trustee is still a trustee.
[662] Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, 416; cited with approval in Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 [36].
The trustee is the archetype of a fiduciary.[663] The duty of the fiduciary is one of 'absolute and disinterested loyalty'.[664] That duty is imposed in equity by means of two overlapping 'proscriptive obligations' or 'themes', often referred to as the 'conflict rule' and the 'profit rule'.[665]
[663] Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, 68; Maguire (463).
[664] Hospital Products (104); Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 265 CLR 1 [67].
[665] Ancient Order [67] ‑ [70]; Warman International Ltd v Dwyer (1995) 182 CLR 544, 558.
Further, the minimum obligations of the trustee necessary to give substance to the trusts are the duties of the trustee to perform the trusts 'honestly and in good faith' for the benefit of the beneficiaries.[666] In the case of a discretionary trust, these obligations may be better expressed as duties to perform the trusts honestly and in good faith for the benefit of the class of persons entitled to their due administration, ie, the class of eligible objects.
[666] Armitage (253 - 254); Wilden [157] - [164]; Rinehart v Welker [2012] NSWCA 95; (2012) 95 NSWLR 221 [139] - [140]; Segelov v Ernst & Young Services Pty Ltd [2015] NSWCA 156; (2015) 89 NSWLR 431 [144] ‑ [145]; ASIC v Drake [No 2] [2016] FCA 1552; (2016) 340 ALR 75 [281] ‑ [285] (Edelman J); Crossman v Sheahan [2016] NSWCA 200; (2016) 115 ACSR 130 [307] ‑ [308]; Jacobs' Law of Trusts (8th ed) [16‑20].
Clause 10 contains two sentences, the first of which includes cl 10.1 and cl 10.2. Clause 10.1 in its terms applies to the 'exercise' of discretions or powers conferred on the trustee or an alleged failure to exercise any discretions or powers. It does not apply to 'professed' or 'purported' exercises of power or discretion,[667] or 'attempted' executions of the powers and discretions in the trust instrument.[668] The terms, subject matter and context of cl 10.1 point to its principal operation being in relation to losses occasioned or allegedly occasioned by the actual exercise or non‑exercise of powers of investment. The loss or damage referred to is that occasioned to the 'Trust Fund' or 'any person'.
[667] Compare Walker v Stones [2001] QB 902, 912, 935.
[668] Compare cl 16 of the Washburn Trust Deed.
The reference in cl 10.1 to loss occasioned to 'any person' appears to be designed, at least principally, to refer to the persons the subject of the notice provision in the last sentence of cl 10, ie, 'persons claiming any interest in the income or capital of the Trust Fund'. In the context of a discretionary trust deed such as the Washburn Trust Deed, those persons are, it may be inferred, the eligible objects of the discretionary trust, although the language of 'interest' is strictly speaking inapt as those persons have no interest, vested or contingent, in the trust fund. Each, however, has an individual right to ensure that the trusts are duly administered and that the 'income [and] capital' of the fund are thereby dealt with appropriately in accordance with the trusts on which the fund is held.
The second part of the first sentence of cl 10, cl 10.2, is expressed to apply to 'any breach of duty or trust whatsoever'. The language is suggestive of a wide, apparently unlimited, operation with respect to 'any breach' which, on its face, would subsume within it the whole of the operation of cl 10.1. A construction of cl 10 which rendered cl 10.1 effectively surplusage is a construction which would not ordinarily be preferred.[669] Further, cl 10.2 remains to be considered in context, and general words may be constrained by context.[670]
[669] George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287 [88]; Tokio Marine & Nichido Fire Insurance Co Ltd v Holgersson [2019] WASCA 114 [52] - [58].
[670] K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309, 315 (Mason J, albeit dissenting in the result); Independent Commission Against Corruption v Cunneen [2015] HCA 14; (2015) 256 CLR 1 [57]; Short v FW Hercus Pty Ltd (1993) 40 FCR 511, 518 ‑ 519.
Clause 10.2 is prefaced by the opening words '[n]o Trustee shall be responsible for' and picks up the subsequent words 'charged to be so liable'. In the context of the first sentence of cl 10 read as a whole, the words 'responsible for' and 'liable' are plainly apt to refer to personal liability for loss or damage, although it is to be acknowledged that they are not necessarily inconsistent with liability for an account of profits. Another aspect of cl 10 relevant to construction is its subject matter - an exemption from liability absent 'personal conscious and fraudulent bad faith'. It has its most natural application to the protection of the trustee from personal liability for loss or damage to the trust estate. It is conceivable that the settlor might seek to limit the trustee's liability for an account of unauthorised profits (which does not depend upon dishonesty or lack of bona fides on the part of the fiduciary).[671] However, if that were the intention then ordinarily there would be express language to that effect, given the significance of the two proscriptive obligations in effectuating and preserving the fidelity of the trustee in the trust relationship.
[671] Warman (557); Ancient Order [70].
The first sentence of cl 10, including cl 10.2, is moreover to be construed in the context of cl 10 as a whole, including its second sentence. The second sentence of cl 10 points to the purpose of cl 10 - the 'protection' of the trustee. The ordinary denotation of 'protection' in this context is the preservation of the trustee from injury or harm.[672] It is more naturally congruent with protection against claims for personal liability for loss or damage to the trust estate, rather than with claims in relation to the enrichment of the trustee.
[672] Definition of 'protection', Macquarie Dictionary (Online Version).
Clause 10 is awkwardly constructed, particularly in its first sentence. Despite its apparent generality, cl 10.2 is not objectively intended to be entirely open‑ended in its operation, which would effectively render cl 10.1 surplusage. Having regard to its language, subject matter, its context within cl 10 read as a whole, and the absence of any express reference to accounting for profits, cl 10.2 appears, on balance, to be designed:
1.to complement cl 10.1 by applying to losses occasioned to the trust fund or any eligible object; and
2.to supplement cl 10.1 by applying to any breach of trust or duty (beyond those in cl 10.1) for which the trustee is charged to be liable.
Properly construed, neither aspect of the first sentence of cl 10 applies to circumstances where the trustee has made an unauthorised gain or benefit by reason of, or by use of, his or her fiduciary position.[673]
[673] cf Lewin on Trusts (20th ed, 2020) [41‑131].
In this case, Washburn used its position as trustee to apply trust funds to the payment of the debts incurred to its own solicitors for which it had no right to indemnity out of the trust estate. This was no mere unauthorised payment of trust funds. The payment of trust funds to discharge its own liability for costs for which it had no right to indemnity out of the trust estate was an unauthorised benefit for which it was liable to account. That duty to account was not excluded by the operation of cl 10. Therefore, ground 6 of the Indemnity Appeal is not established.
Ground 3 of the notice of contention
Ground 3 of Mae's notice of contention in the Indemnity Appeal contends that the trial judge's decision should be upheld on the basis that Washburn's breach of trust in paying its costs from funds of the Washburn Trust without indemnity was proved to have been committed or made in personal conscious and fraudulent bad faith by Washburn within the meaning of cl 10 of the Washburn Trust Deed.
Given the failure of ground 6 of the Indemnity Appeal, it is strictly unnecessary to resolve ground 3 of Mae's notice of contention. However, we will deal with ground 3 for completeness. For the following reasons, ground 3 of Mae's notice of contention is not established and does not provide an alternative basis on which the trial judge's order requiring Washburn to reimburse the Washburn Trust could be sustained.
Mae accepts that bad faith connotes conscious wrongdoing that is knowingly or recklessly inconsistent with the interests of the beneficiaries. She accepts that the intention disclosed by cl 10 is that there only be liability for actual fraud not its equitable equivalent, and that actual fraud in this context means dishonesty or bad faith.[674]
[674] First respondent's submissions in support of notice of contention, par 40 (White AB 79), citing Wilden [162] - [163]. See also Armitage (251 - 254); Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566 [152]; Jacobs' Law of Trusts (8th ed) [16‑20]. Cf Banditt v The Queen [2005] HCA 80; (2005) 224 CLR 262 [2].
The argument raised by ground 3 of the notice of contention is a limited one. In inviting the finding that Washburn committed a breach of trust in personal conscious and fraudulent bad faith, Mae relies on the passage of the trial judge's reasons quoted at [560.5] above. Mae characterises this as a finding that Philip caused the trustee companies to defend the proceedings on a basis which he knew to be false as to a critical factual issue. Mae contends that the effect of this finding is that Washburn, through Philip, knew that its defence of the Trust Action was based on an untruth. On that basis, Mae contends that this court should make an express finding that, in applying trust funds to the defence of the removal suit, Washburn acted in personal conscious and fraudulent bad faith within the meaning of cl 10 of the Washburn Trust Deed.[675]
[675] First respondent's submissions in support of notice of contention, pars 44 - 45 (White AB 80); appeal ts 300 - 301.
We are unable to accept this submission as to the effect of the finding set out at [560.5] above. The trial judge is at that point making a finding as to the reasonableness of the trustee companies' conduct which is, in effect, the finding we have made at [584] above. We do not read this as a finding that Philip deliberately lied in his evidence, or as a finding directed to the question of Philip's honesty. We would have expected the trial judge to have expressed a finding as to dishonesty is much clearer terms.
It may be taken that the judge was aware that:
1.a finding that a person deliberately lied when giving evidence is, in effect, a finding of perjury;[676] and
2.a specific finding that a party or witness has deliberately given false evidence should ordinarily not be made unless it is truly necessary for disposing of the particular case.[677]
A finding to the effect that Philip committed perjury was not strictly necessary for the resolution of the issue concerning the removal of the trustees. Nor was it strictly necessary for the resolution of the issue of whether the trustees were entitled to indemnity in equity or under s 71 of the Trustees Act in circumstances where the judge found that the trustees acted unreasonably in resisting removal. His Honour did not, in the reasons referred to in [560.5] above, make, or purport to make, what was in effect a finding of perjury. That is confirmed when regard is had to the careful and detailed findings made by the judge in his assessment of Philip's evidence referred to in [39] above.
[676] Smith v NSW Bar Association (1992) 176 CLR 256, 268.
[677] Smith (271).
Our reading of the trial judge's reasons is confirmed by the procedural history leading to his Honour's determination and consideration of procedural fairness.
The ordinary requirement of procedural fairness in relation to allegations of fraud or dishonesty is that they should be pleaded with particularity and put.[678]
[678] Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) [2003] HCA 25; (2003) 214 CLR 514 [38]; Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252; (2013) 302 ALR 732 [54].
That was not done in this case at the trial prior to the delivery of the primary decision. In this case, the issue of the operation of cl 10 was raised through the defence and the reply, but there was no particularity in Mae's reply, which was no more than a general joinder of issue. Insofar as Mae in her statement of claim alleged that the trustees should restore the moneys applied in defence of the proceedings, there was no allegation of dishonesty and it was a conditional plea, dependent upon success in removing the trustees. Also, it was not put to Philip in cross‑examination at the trial that Washburn's use of trust funds in defence of the suit was made in personal conscious and fraudulent bad faith. The passages of cross‑examination referred to by Mae in her submissions below on 23 November 2021 (see [600] above) and in this appeal[679] did not squarely address the issue.
[679] Appeal ts 305 - 308.
However in the circumstances of this case, and having regard to its procedural history referred to in [592] ‑ [600] above, the question of whether Washburn acted in personal conscious and fraudulent bad faith was not a matter that could satisfactorily be addressed (including in cross‑examination) ahead of any determination of whether Washburn should be removed as trustee and, if so, on what grounds. The trial judge found that it was appropriate to consider the question of the trustees' right to indemnity from trust assets together with the question of costs generally after the publication of the primary decision.[680]
[680] Primary decision [633].
On 4 October 2021, after the delivery of the primary decision, the judge ordered, in effect, that all questions relating to indemnity, which included the operation of cl 10, would be heard on 22 and 23 November 2021.[681] If there was to be a finding of personal conscious and fraudulent bad faith on the part of Washburn in expending trust funds in defence of the suit, procedural fairness would, at that point, ordinarily have required at least:
1.an amendment to the statement of claim[682] and the provision of particulars by Mae that Washburn had so acted in personal conscious and fraudulent bad faith; and
2.an application to recall Philip for cross‑examination on the topic.
The judge had a discretion to recall Philip if it were in the interests of justice to do so.[683] The interests of finality which would commonly count against a recall were not compelling as the issue of Washburn's honesty in applying the trust funds to pay its costs had not substantively been addressed at trial or in the primary decision and a further hearing had been set for that purpose before final orders were made.
[681] Trust Appeal Blue AB 2 - 3.
[682] Young v Hones [2014] NSWCA 337 [146] - [150].
[683] Searle v Keayes (1994) 126 ALR 728, 729.
An experienced trial judge, as his Honour was, would plainly have been aware of the requirements of procedural fairness in relation to allegations of dishonesty.
In this context, the findings of Philip's knowledge referred to in [560.5] above are not to be construed as findings that Washburn (through Philip) dishonestly applied trust funds to legal expenses in breach of trust. The findings in [560.5] above were not made in the context of a consideration of whether Washburn should restore the funds applied in payment of its legal expenses on the basis of dishonesty for the purposes of the operation of cl 10. Clause 10 was not referred to. The issue there being addressed was the reasonableness of Washburn's conduct in defending the removal suit when the truth of the matters alleged against it were within the knowledge of the trustee.
Moreover, the absence of any finding of dishonesty in this regard is confirmed by his Honour's consideration, in the following paragraphs of the supplementary decision, of Washburn's contention that it should be relieved from any breach of trust pursuant to s 75 of the Trustees Act. Whilst his Honour noted that the cumulative requirements under s 75 included that the trustee had acted honestly, his Honour evidently avoided any finding on the question of Washburn's honesty. Instead, the judge dismissed Washburn's reliance on s 75 on the basis that any breach was not one for which the trustee 'ought fairly be excused' (the third of the cumulative requirements under s 75).[684]
[684] Supplementary decision [25].
For these reasons, we do not accept Mae's construction of the supplementary decision to the effect that the findings referred to in [560.5] above were in the nature of, or tantamount to, or evinced, a finding that Washburn dishonestly applied trust funds in the defence of the removal suit. As this was effectively the basis upon which ground 3 of the notice of contention was advanced, we would reject ground 3 of the notice of contention.
Therefore, ground 3 of Mae's notice of contention in the Indemnity Appeal is not established. However, the failure of the appellants' grounds of the Indemnity Appeal means that the appeal must nevertheless be dismissed.
Orders
For the above reasons, we would make the following orders in the appeals:
Estate Appeal and Estate Cross-appeal (CACV 100 of 2021)
1.The appeal is dismissed.
2.The cross-appeal is allowed.
3.The cross-appellant's application in an appeal filed on 22 December 2022, seeking leave to adduce additional evidence in the cross-appeal, is granted.
4.Order 11 of the orders made by the Supreme Court in CIV 3186 of 2016 on 4 October 2021 is set aside.
5.The matter is remitted to the General Division of the Supreme Court for an assessment of the damages payable by the first appellant to the estate of Marco Antonio Cardaci for the first appellant's breach of his duties as the executor of that estate in asserting and admitting that the estate was liable to Ongold Corporation Pty Ltd in the amount of $1,280,714 which was paid to Duporte Corporation Pty Ltd on 10 November 2015.
Trust Appeal (CACV 101 of 2021)
1.The appeal is dismissed.
Indemnity Appeal (CACV 7 of 2022)
1.The first respondent's application in an appeal filed on 18 April 2023, seeking leave to file and serve supplementary submissions and withdraw its concession, is granted.
2.The appeal is dismissed.
We would hear from the parties on the question of costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EM
Associate to the Honourable Justice Mitchell
9 NOVEMBER 2023
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