Rojoda Pty Ltd (ACN 164 809 581) as trustee for the a & MMR Scolaro Partnership and the Scolaro Investment Company Partnership v Scolaro - [2023] WASC 210

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   ROJODA PTY LTD (ACN 164 809 581) as trustee for the A & MMR SCOLARO PARTNERSHIP and the SCOLARO INVESTMENT COMPANY PARTNERSHIP -v- SCOLARO [2023] WASC 210
CORAM:   MASTER SANDERSON
HEARD:   13 APRIL 2023
DELIVERED          :   30 JUNE 2023
FILE NO/S:   CIV 2082 of 2022
BETWEEN:   ROJODA PTY LTD (ACN 164 809 581) as trustee for the A & MMR SCOLARO PARTNERSHIP and the SCOLARO INVESTMENT COMPANY PARTNERSHIP
Plaintiff
AND
DIANA SCOLARO
First Defendant
DIANA SCOLARO as trustee of the JASCO TESTAMENTARY TRUST
Second Defendant
EMILY SCOLARO
Third Defendant

Catchwords:

Trusts - Application for judicial advice -Turn on own facts

Legislation:

Australian Consumer Law
Rules of the Supreme Court 1971 (WA)
Trustees Act 1962 (WA)

Result:

Advice given

Category: B

Representation:

Counsel:

Plaintiff	:	J Winton
First Defendant	:	SCM Wong
Second Defendant	:	SCM Wong
Third Defendant	:	No appearance

Solicitors:

Plaintiff	:	MDS Legal
First Defendant	:	Stoddart & Co
Second Defendant	:	Stoddart & Co
Third Defendant	:	In Person

Cases referred to in decision:

IOOF Australia Trustees Ltd and the Trustee Act 1936 [1999] SASC 461
LM Investment Management Ltd (In Liq) v Drake & Ors [2020] QSC 265
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66
Messina v Rodi [No 2] [2014] WASC 32
Plan B Trustees Limited v Parker [No 2] [2013] WASC 216
Wood v Wood [No 4] [2014] WASC 393

MASTER SANDERSON:

The plaintiff applies by originating summons filed 14 October 2022 for a direction pursuant to s 92 of the Trustees Act 1962 (WA) (Act) and O 58 r 2(e) and (g) of the Rules of the Supreme Court 1971 (WA) (Rules) that the plaintiff is justified in:
(a)compromising its claim against Ernst & Young (A Firm) (EY) in Supreme Court proceedings CIV 3051 of 2019 filed on 29 November 2019 (Action), in terms of an in principle agreement set out in a draft Settlement Deed between the plaintiff and EY (Settlement Deed); and
(b)distributing the 'Settlement Sum' as defined in the Settlement Deed between the A & MMR Scolaro Partnership (In Dissolution) (AMS Partnership) and the Scolaro Investment Company Partnership (In Dissolution) (SIC Partnership) (together the Partnerships) in specified proportions.
The application is supported by affidavits of a director of the plaintiff, Mrs Rosana Bonavita (Rosana) sworn 13 October 2022 (Bonavita affidavit) and a further affidavit of Rosanna sworn 13 October 2022 (sensitive affidavit). There is also an affidavit of the solicitor for the plaintiff, Mr Ashley Macknay sworn 14 October 2022 (Macknay affidavit). Both the sensitive affidavit and the Macknay affidavit are the subject of orders made pursuant to O 67B r 5 of the Rules. Access to them is restricted on the basis they contain material that is privileged and confidential. In the course of the hearing where reference was made to these affidavits in submissions, it was done by way of identifying the evidence by pinpoint rather than replicating or summarising content of the evidence.
In opposition to the application, the second defendant swore an affidavit of 10 March 2023.
At the commencement of the hearing, counsel sought to amend the originating summons in terms of a minute of proposed amended originating summons filed 4 April 2023. After hearing argument on this issue, I made an order the minute of proposed amended originating summons stand as the originating summons. Having heard the submissions put on behalf of the defendants in relation to the amendment, I was not entirely sure why the amendment was necessary or why it was opposed. In the end nothing seems to turn on the amendment which did nothing more than add a party to the proceedings. It did not in any way effect the way in which the application proceeded.
In broad terms, there was no dispute between the parties as to the correct approach to applications such as this. Section 92(1) of the Act provides:
Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee.
In order for the court's jurisdiction to be enlivened, the plaintiff must point to a question respecting the management or administration of trust property or a question respecting the interpretation of the trust instrument. Directions concerning whether legal proceedings are or are not justified are within the court's jurisdiction under s 92 of the Act as are directions concerning whether the compromised proceedings is justified. The court exercises a discretion when considering applications for advice brought by trustees. Advice does not have to be given. An application for judicial advice is founded upon facts stated to the court by the trustee, untested by adversarial procedure, and assumed by the court to be true. This assumption is made only for the purposes of the application. The advice is given on that basis.
The procedure enables the court to advise the trustee whether it is lawful to exercise its discretion in a certain way. But the court cannot tell the trustee how to exercise that discretion or whether a proposed exercise of discretion is necessarily correct. This is generally the point upon which the cases differ. It is one thing to advise a trustee that it is lawful to exercise a discretion in a particular way and it is another thing entirely to tell the trustee whether or not the proposed exercise of discretion is correct. The outcome of this application turns on that distinction.
There is no doubt a trustee has power to compromise litigation. Where the court is being asked for advice and direction concerning the compromise of litigation, the court can do no more than consider whether it is proper for the trustee to consider the compromise. The terms of the compromise will be for the trustee to determine. The court should not exercise its discretion in such a way as to take on the role and responsibilities of trustees in relation to the making of commercial decisions or with respect to the conduct of litigation. Rather, the court will be concerned to ensure the trustee has taken proper advice and given full consideration to all relevant matters before arriving at a reasoned and appropriate decision. If satisfied of those matters, in appropriate cases the court will give the directions sought and thereby confer protection upon a trustee taking action in accordance with these directions.
Historically, applications for judicial advice were accompanied by an opinion from senior counsel. In Plan B Trustees Limited v Parker [No 2] [2013] WASC 216 at [41] - [46], Edelman J doubted the provision of such an opinion is necessary in every case. However, the obtaining of an opinion from senior counsel is still relevant to assessing whether the trustee has properly considered whether the proposed course is in the best interests of the beneficiaries.
Considerations that inform whether a proposed settlement is justified include:
(a)the nature of the case and the issues raised;
(b)the prospects of success;
(c)the amounts involved, including likely costs and whether those costs are proportionate to the issues and the significance of the case; and
(d)the consequences of the litigation to the parties concerned.
If there is one consideration more than any other which ought be present in the mind of the trustee, especially the trustee of a small and easily dissipated fund, it is that all litigation should be avoided unless there is such a chance of success as to render it desirable in the interests of the estate that the necessary risk be incurred.
These principles largely mirror the submissions on the law made by plaintiff's counsel in his written submissions. That said, I am satisfied they are an accurate summary of the law as it stands and as it is applied in this State. The relevant authorities are Wood v Wood [No 4] [2014] WASC 393, Messina v Rodi[No 2] [2014] WASC 32, Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66, IOOF Australia Trustees Ltd and the Trustee Act 1936 [1999] SASC 461 and Herbert v Blenkinsop [2018] WASC 369.
The relevant background facts were not in dispute. Anthony Scolaro (Anthony) and Maria Scolaro (Maria) were a married couple who established a number of partnerships (in the case of the SIC Partnership also with other parties), governed by deeds. These partnerships were established for the purposes of investment. The partnerships acquired real property which was registered in the joint names of Anthony and Maria and held on trust for the respective partnership that acquired it. Anthony died on 12 February 2011. Both of the deeds governing the partnerships contained clauses that granted, in effect, Maria (and in the case of the SIC Partnership, other partners) options to acquire Anthony's share in the partnership by a specified time, failing which the partnership would be dissolved. Neither Maria nor any of the other partners exercised those rights and as a result, the partnerships were dissolved. Maria became the sole registered proprietor of the properties by survivorship. She held those properties on trust for the partnerships which had been dissolved.
Anthony's children, John Scolaro (John), David Scolaro (David) and Rosana obtained probate of Anthony's will on 19 January 2012. Under the terms of Anthony's will, the residue of his estate was to be divided into three equal parts to form testamentary trusts for the benefit of his children and other beneficiaries. Specifically:
(a)a one third proportion on trust for John as primary beneficiary and his children and others to be beneficiaries (JASCO Trust), with John or his nominee as trustee;
(b)a one third proportion on trust for Rosana as primary beneficiary and her children and others to be beneficiaries (RASCO Trust), with Rosana or her nominee as trustee; and
(c)a one third proportion on trust for David as primary beneficiary and his children and others to be beneficiaries (DASCO Trust) with David or his nominee as trustee.
On 7 August 2013, John died intestate. The trustee of the JASCO Trust is now John's eldest daughter, Diana, who is also the administrator of his estate. Rosana is the trustee of the RASCO Trust and David is the trustee of the DASCO Trust. The beneficiaries of John's estate are John's widow, Bianca Scolaro (Bianca) and his four children, Diana, Loretta Scolaro (Loretta), Christine Irdi (Christine) and Emily. All of that means the beneficiaries of the trusts administered by the plaintiff are Maria, the beneficiaries of the JASCO Trust, the beneficiaries of the RASCO Trust, the beneficiaries of the DASCO Trust, Rosana, David, Bianca, Diana, Loretta, Christine and Emily.
In or about May 2013, Diana approached Graeme Cotterill, an employee of EY, for legal advice about the properties held by Maria. Following oral and written communications between Diana, Rosana and Mr Cotterill, Mr Cotterill drafted two deeds, one for each of the partnerships (together the 2013 Deeds) to which the plaintiff was a party. Both the 2013 Deeds contained provisions whereby Maria resigned as trustee of the trusts and the plaintiff was appointed as trustee in Maria's place. The 2013 Deeds were duly executed. The Commissioner of State Revenue then imposed duty on each of the 2013 Deeds on the basis that each created a new trust and changed the trust arrangement and beneficial ownership that existed prior to the 2013 Deeds. As a result, duty was imposed on the full value of the properties rather than at a nominal rate. It is clear when the 2013 Deeds were drafted by Mr Cotterill, it was on the basis that only nominal duty would be paid rather than duty on the full value of all properties.
An objection was lodged by the plaintiff on the basis that inter alia, the 2013 Deeds had not created new trusts but had simply recognised or acknowledged existing trusts. That objection was rejected by the Commissioner. The plaintiff applied for review of the Commissioner's decision in the State Administrative Tribunal. The application was dismissed. The plaintiff then appealed successfully to the Court of Appeal. The Commissioner was then granted special leave to appeal to the High Court. The High Court, by a majority of four to one, upheld the Commissioner's appeal. The end result then was that duty was payable on the full value of each of the properties. As might be imagined from that tortuous litigation history, the issues between the parties were complex. But in substance, the question was whether each of the 2013 Deeds had the effect of creating a new trust or merely acknowledged or recorded an existing obligation of Maria that had arisen under the general law. The High Court essentially decided it was the former and the 2013 Deeds were dutiable instruments. Mr Cotterill had given advice the 2013 Deeds were not dutiable.
On 29 November 2019, the plaintiff commenced the Action against EY. The endorsement on the writ alleges, in effect, that:
(a)EY breached its common law duty to exercise reasonable care and skill in providing legal services, or breached an express or implied contractual duty to the same effect, or engaged in misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law;
(b)the breach arose from EY's conduct, between May to December 2013, in advising the plaintiff concerning the 2013 Deeds, failing to warn or properly advise the plaintiff of the consequences of executing them, or preparing them for execution; and
(c)EY is liable for damages by reason of the breach. The damages claimed were the duty imposed by the Commissioner on the 2013 Deeds and the legal fees the plaintiff incurred funding proceedings all the way to the High Court.
In written submissions, counsel for the plaintiff summarised the issues raised in the following way:
36.In respect of the contractual claim, the issues are likely to be:
a.whether the plaintiff was a party to the retainer that arose from Diana and Rosana's communications with, and request for advice and services from, Mr Cotterill and EY. That issue arises in circumstances where the plaintiff had not been incorporated at the time and was not named in any written retainer with EY;
b.if the plaintiff was a party to the retainer, whether the terms of the retainer were breached by reason of a failure to exercise reasonable care and skill in providing legal advice and services by, in effect, failing to advise the plaintiff about the risk that duty would be imposed if the 2013 Deeds were executed. That issue arises in circumstances where the view expressed by Mr Cotterill, and on which the transaction contemplated by the 2013 Deeds was based, was consistent with the conclusions reached by three members of the Court of Appeal, and one member of the High Court, on the same issue; and
c.if the terms of the retainer were breached, whether the breach caused the plaintiff any loss or damage. In that respect, questions will arise as to:
i.whether there was, in fact, any way that the plaintiff could have structured the transaction contemplated by the 2013 Deeds (ie. the replacement of Maria as trustee) that could have avoided the imposition of duty, bearing in mind the general anti-avoidance provisions that applied at the time; and
ii.whether the costs incurred by the plaintiff in prosecuting the proceedings in the Tribunal and Court of Appeal, and defending the proceedings in the High Court, are recoverable, either because they were too remote from the breach or were not reasonable steps to take in mitigation of the plaintiff's loss.
37.In respect of the negligence claim, the issues raised are likely to overlap to a large degree with those raised in the contractual claim, save that there is also likely to be a question as to whether EY owed any duty of care to the plaintiff if it was not a party to the retainer with EY (ie. not a client) and in circumstances where the plaintiff's interests were not the same as those of the other parties to the retainer.
38.In respect of the claim of misleading or deceptive conduct, the central issue is likely to be whether the advice provided by Mr Cotterill constituted an opinion and, if so, whether it was an opinion expressed by an expert, honestly held upon rational grounds involving an application of the relevant expertise. Again, that issue arises in circumstances where the opinion expressed by Mr Cotterill accords with views expressed by members of the Court of Appeal and High Court.
Counsel for the plaintiff submitted that each of the issues posed difficulty for the plaintiff. With respect, I would agree with that submission. There must be a risk the plaintiff's Action would fail. It must be borne in mind that although the Commissioner overruled the plaintiff's objection and that decision was supported by the State Administrative Tribunal, the Court of Appeal sided with the plaintiff. The Court of Appeal's decision was unanimous. Even in the High Court, Gageler J would have dismissed the appeal - he was satisfied the decision of the Court of Appeal was correct. This is not one of those cases where the advice of Mr Cotterill was clearly and obviously wrong. Ultimately, the advice proved to be incorrect but it took the High Court to determine that was the case.
The matter ultimately went to mediation and the plaintiff and EY reached a settlement. It is the settlement sum which is the subject of the directions sought by the plaintiff. The plaintiff says it has extensively considered the issues raised by the action. In that consideration, it has had the benefit of:
(a)a position paper prepared for mediation on the plaintiff's behalf by its solicitors, MDS Legal;
(b)a position paper prepared for mediation by EY;
(c)a written opinion from Mr Grahame Young on a number of taxation issues that arise in the Action relevant to the plaintiff's prospects of success, this written advice being supplemented by oral advice in conference;
(d)a written opinion from Mr Macknay as to the plaintiff's prospects of success in the Action; and
(e)a written opinion as well as a supplementary written opinion from Mr Gary Cobby SC as to the plaintiff's prospects of success.
The plaintiff points out the legal advice it has considered has been provided by practitioners who are not involved in the proceedings before the Tribunal, the Court of Appeal and the High Court. They are independent and they have had 'no previous legal or intellectual investment in the case': see LM Investment Management Ltd (In Liq) v Drake & Ors [2020] QSC 265 per Callaghan J at [79].
Before detailing the concerns raised by Diana, I should note that EY acted for the plaintiff at all times up to and including the High Court Appeal. On one level that seems odd. Afterall it was EY who gave advice to the plaintiff the 2013 Deeds would not be dutiable. It was that very issue which led to the protracted litigation. On the face of it then, EY had a vested interest in the outcome of the litigation. While that may well be the case, it is difficult to see how the interests of EY diverged from the interests of the plaintiff. It was in EY's interest to establish the 2013 Deeds were not dutiable. Had that been the outcome, there was no question of the plaintiff taking action against EY. Nonetheless as will become clear, Diana raises concerns about there being a breach of fiduciary duty by EY in continuing to act for the plaintiff.

In their written submissions, counsel for Diana set out her concerns. These paragraphs read as follows:
51.Rojoda did not make a Beddoe application, and the litigation did not progress to the close of pleadings. There is no comprehensive statement of claim and no opinion from counsel about the possible claims against EY, and the merits of those claims.
52.Rojoda did receive an opinion from Senior Counsel on or around 11 July 2021, and a supplementary opinion on 8 December 2021. However, the utility of Senior Counsel's opinions is limited by the questions counsel was considering. Senior Counsel was provided with a copy of the writ in which Rojoda claimed damages for breach of contract, in negligence, and for misleading and deceptive conduct. Significantly, the writ did not contain any equitable claim for a breach of fiduciary duty.
53.A claim for breach of a fiduciary obligation has a different rationale distinct from the tort of negligence and contract. Causation is usually not a problem in equity. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently, the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question. The essence of the fiduciary relationship by contrast is that one party pledges herself to act in the best interests of the other. This could potentially expose a fiduciary to greater liability and correspondingly result in a more generous award for the principal.
As I understand Diana's position, she does not reject entirely the prospect of settling in the terms agreed at mediation. However, she is concerned the settlement figure is too low. Of particular concern is the fact she says a claim for breach of fiduciary duty against EY has not been properly considered. Her primary position is that the orders sought at present ought not be made and the plaintiff should be provided with an opportunity to take further advice in relation to the settlement.
In my view, it is clear the orders sought by the plaintiff ought be made. I have reached that conclusion for three main reasons. First, I am satisfied the plaintiff has fully investigated this claim, has taken advice that is comprehensive and has properly assessed the prospects of success.
Second, I am not satisfied the plaintiff has failed to factor in an alleged breach of fiduciary duty. I accept it is not for me, on an application such as this, to attempt any assessment of the relative merits of such a claim. The question is whether such a claim has been considered. I am satisfied that a reasonable reading of the opinion of Mr Cobby SC in particular, establishes that has been done. Taken in the overall, I am not of the view that any further advice from Mr Cobby SC or other counsel would advance the matter.
Finally, it is time this matter was brought to a conclusion. The whole sorry business has extended over 10 years. To push these proceedings on even if it was only to obtain further advice would not objectively be in the interests of the parties. It is best the matter is terminated and the affairs of the two partnerships are concluded.
There is one final point which arose during the course of submissions by counsel for the defendant which requires comment. He submitted the obligations of a bare trustee such as the plaintiff are more extensive than the obligations of a trustee appointed by deed. In particular, he suggested it would have been appropriate for the plaintiff to have approached the court before issuing proceedings against EY. That may well be correct. But there is no authority for the proposition the duties of a bare trustee in relation to an application such as this differ in any way from the obligations of any other trustee. To the extent counsel's submissions were to the effect the obligations of the plaintiff were greater because it was a bare trustee in relation to this application, that submission ought be rejected.
Subject to hearing from the parties, I would propose to make orders in terms of the amended originating process. Any submissions from the parties in relation to the orders should be made within seven days of the publication of these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CM
Associate
30 JUNE 2023