Trani v Trani (No 2)
[2018] VSC 612
•19 October 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TRUSTS, EQUITY AND PROBATE LIST
S CI 2015 05222
| PATRIZIA TRANI | Plaintiff |
| v | |
| MARCO TRANI | First Defendant |
| LUCIANO TRANI | Second Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 September 2018. Further written submissions filed 19 September 2018 and 27 September 2018 |
DATE OF JUDGMENT: | 19 October 2018 |
CASE MAY BE CITED AS: | Trani v Trani (No 2) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 612 |
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TRUSTS – Final orders – Costs – Interest
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M J Hoyne | Baraka Lawyers |
| For the Defendants | Mr A Panna QC | Robert James Lawyers |
HER HONOUR:
On 21 June 2018, I delivered reasons in respect of the plaintiff’s claim and the defendants’ counterclaim.[1] The issues in the proceeding and my findings in relation to those issues are set out in full in the June reasons. In the June reasons, I made the following findings:
[1][2018] VSC 274 (‘June reasons’). References to the parties and defined terms in these reasons mirror those used in the June reasons.
(a)the 15 March resolution was not effective to appoint 15 March 2013 as the Vesting Day pursuant to clause 4 of the Deed;
(b)the 26 June resolution was not effective to appoint Marco and Luciano as beneficiaries of the Vesting Trust;
(c)the 26 June resolution was effective to distribute the income of the trust earned in the 2013-2014 financial year to Marco and Luciano;
(d)for the avoidance of doubt, the 26 June resolution, as construed, could not be impugned on the basis of bad faith and/or improper purpose;
(e)the remedy of rectification is available to Marco and Luciano to (i) appoint them as beneficiaries of the Vesting Trust, and (ii) amend the dollar figures in paragraph 3(c) of the 26 June minute, in order to give effect to their clear intentions that day;
(f)however, the 26 June resolution, as rectified, was invalid on the basis that the trustee’s decision was motivated by bad faith, and the trustee failed to give real and genuine consideration to the entitlements of the beneficiaries, and in particular, Patrizia;
(g)given the above, (noting that it was not contended at trial that, were I to make findings adverse to Marco and Luciano concerning the 26 June resolution, they would not be liable under the principles in Barnes v Addy[2]) Marco and Luciano have knowingly assisted in a breach of trust on the part of Latina; and
(h)having regard to my findings above, further consideration needs to be given to:
(i)the unpaid entitlements owed to Marco, Luciano, and the estate of Caterina;
(ii)whether the status of Latina needs to be regularized in order to give effect to the remedy of rectification;
before making final orders.
[2](1874) LR 9 Ch App 244.
On 21 June 2018, I ordered that, given the nature of my findings, there be a further hearing regarding the form of the final orders to be made. At the resumed hearing on 11 September 2018, the following issues required resolution:
(a) whether the 26 June resolution was effective to distribute the income of the trust in 2013/2014 to Marco and Luciano, or whether the resolution was invalid in its entirety (‘effect of 26 June resolution issue’);
(b) whether Marco and Luciano are entitled to be paid the income distributed to them (but not paid to them) over the lifetime of the trust prior to the balance of the capital of the trust being transferred to them and Patrizia in equal shares (‘unpaid entitlements issue’);
(c) whether, despite my finding that rectification of the 26 June minute is available to Marco and Luciano, it is necessary to make an order or declaration to that effect (‘rectification issue’);
(d) having regard to each of (a) to (c) above, the amount actually payable to Patrizia (‘payment issue’);
(e) whether the defendants ought to be jointly and severally liable to Patrizia for the amount payable to her (‘defendants’ liability issue’);
(f) the date from which any interest should run (‘interest issue’); and
(g) the question of costs, and in particular, whether there ought to be any discount of any the costs ordered in favour of Patrizia by reason of any failure to recover the full amount sought by her (‘costs issue’).
In their written outline of submissions filed on the day prior to the resumed hearing, Marco and Luciano sought orders that Patrizia pay their costs of various interlocutory hearings held throughout the course of the proceeding (prior to my involvement in the proceeding). I invited Marco and Luciano to file further written submissions after the hearing to support their application in respect of reserved costs. Later, their solicitors informed the Court that they did not intend to file any further written submissions on this question. Given that indication, and the lack of any material on the court file to indicate why any reserved costs ought to be payable to Marco and Luciano, those costs ought to be the parties’ costs in the proceeding.
In relation to the effect of the 26 June resolution issue, given that resolution of this issue turns upon differing views about the construction of the June reasons, I shall say little about this matter in addition to repeating what I said at paragraph 219(c) and (d) of the June reasons (see paragraph 1 above), being:[3]
(c)the 26 June resolution was effective to distribute the income of the trust earned in the 2013-2014 financial year to Marco and Luciano;
(d)for the avoidance of doubt, the 26 June resolution, as construed, could not be impugned on the basis of bad faith and/or improper purpose.
[3]See also paragraph 114 of the June reasons.
Accordingly, the net balance of the trust available for distribution to the primary beneficiaries of the trust (being Marco, Luciano and Patrizia) needs to reflect the effective distribution of income to Marco and Luciano. This is consistent with the submissions of counsel for Patrizia at trial[4] and my acceptance of those submissions.[5]
[4]June reasons, [127], [130].
[5]Ibid, [133], [138]-[140].
The submissions made by counsel for Patrizia seek to conflate my findings about the actual intentions of Marco and Luciano as at 26 June 2014 (giving rise to the remedy of rectification) and my findings concerning the objective construction of the 26 June minute. There is a material difference in the analysis required to be undertaken when determining how to construe a written document, and whether rectification ought to be ordered. As noted by the authors of ‘Remedies in Equity: The Laws of Australia’.[6]
With rectification, what the Court examines is the parties’ subjective intentions, whereas construction of an instrument involves an objective exercise by the Court.
[6]Wright & Hepburn (Thomson Reuters), [15.12.350].
That is, notwithstanding the fact that I found that Marco and Luciano did not actually intend to distribute the income of the trust alone, the effect of the 26 June resolution, as construed, was to do so.
In relation to the unpaid entitlements issue, senior counsel for Marco and Luciano submitted that the net balance of the assets of the trust as at 26 June 2014, after taking into account the valid distribution of income to Marco and Luciano, should also be adjusted to take into account the income distributed to Marco and Luciano (and the estate of Caterina) in earlier years and not paid to them. The evidence of Mr De Vitto at trial was that those distributions to Marco and Luciano were valid, but were not paid to them separately: rather, they were ‘subsumed’ within the final payment to Marco and Luciano on 26 June 2014. Given that I have found that, insofar as the 26 June resolution, as rectified, purported to distribute the capital of the estate, it was invalid, senior counsel for Marco and Luciano submitted that there should be some adjustment in the sum finally payable to Patrizia to reflect their prior entitlements. Counsel for Patrizia submitted that to reduce the payment to Patrizia on the basis of the alleged unpaid entitlements would be ‘grossly unfair and a breach of the rules of procedural fairness’. If this issue had been raised in the proceeding then it could be properly investigated. The issue was only raised in this proceeding because it was relevant to what Marco and Luciano knew and understood at the time the 26 June resolution was made.
I agree with the submissions of counsel for Patrizia that it would be inappropriate to make an adjustment for the amounts said to have been distributed to Marco and Luciano from the income of the trust over time, but not paid to them, as shown in an exhibit tendered by Patrizia at trial.[7] First, while this question emerged during the course of the trial of the proceeding, it was not an issue in the proceeding. It had not been the subject of any pleading or submissions: rather, it arose as a sidewind as a consequence of Mr De Vitto’s evidence. I agree that if Marco and Luciano were to pursue any claim for these funds, it would be necessary for there to be further discovery concerning the historical accounts of the trust, and questions of waiver, limitation of actions, and the proper construction of the trust deed may well arise. Further, the provenance of the document relied upon by Marco and Luciano to support any claim for unpaid entitlements remains unclear.[8] The matter is further complicated by the fact that any claim made by Marco and Luciano for payment of their unpaid entitlement would need to be made against the trustee (which has been deregistered), not Patrizia, the differing amounts said to be owed to Mario and Luciano, and the amount said to be owed to the estate of Caterina.
[7]Exhibit ‘G’.
[8]While it is quite likely that the document was prepared by Mr De Vitto, this was not the subject of direct evidence.
However, I accept that there is prima facie evidence which supports Marco and Luciano’s claims with respect to their unpaid entitlements as beneficiaries of the trust. For that reason, I will order that the sum of $64,902.67, being one third of the amount of the unpaid entitlements referred to in the evidence, be paid into the trust account of the solicitors for Marco and Luciano pending resolution of these claims, with those funds to be released to Patrizia if a proceeding in a court of competent jurisdiction is not brought within a reasonable time. While I accept that this proposal does not reflect the potential discrepancy between the claims of Marco and Luciano for unpaid entitlements, it does prompt the parties to resolve this matter. Alternatively, if the parties agree, I would be content to order that there be an accounting with respect to the trust, limited to ascertaining the outstanding liabilities of the trust with respect to unpaid beneficiary entitlements as at 26 June 2014. That may be a more cost‑effective means of resolving this issue, but I would only make that order if the parties agreed.
In relation to the rectification issue, senior counsel for Marco and Luciano submitted that it was not necessary for me to make orders for rectification of the 26 June minute, provided that the final sum ordered to be paid to Patrizia reflected the findings made in the June reasons. However, for completeness, I will do so, adopting the formulation advanced by counsel for Patrizia. The declarations and orders made should reflect the findings actually made in the June reasons, and I accept that the absence of Latina as a party to the proceeding is no barrier to making an order for rectification.[9]
[9]Jenkins v Visualeyes Pty Ltd [2005] VSC 218, [141].
In relation to the payment issue, the consequence of the findings in relation to the matters above means that the sum due to Patrizia is $289,101.60, subject to the sum of $64,902.67 being held in the solicitor’s trust account pending further action, resulting in an immediate payment to Patrizia of $224,198.93.
In relation to the defendants’ liability issue, I see no reason why the defendants should not be jointly and severally liable to pay Patrizia the funds payable to her. As noted by counsel for Patrizia in his submissions at the resumed hearing, in the June reasons I found that Marco and Luciano had knowingly assisted in a breach of trust on the part of Latina. Little if no attention was paid during the course of the trial (or the June reasons) to any distinction between the two heads of liability under the principles of Barnes v Addy,[10] no doubt because there was a coincidence of identity between the directors of the trustee, and the recipients of the trust funds. The situation might be different had, say, part or all of the assets of the trust had been distributed to other parties, such that there was a distinction between the parties which facilitated the breach of trust, and those who received the funds, but that is not what happened here.
[10](1874) LR9 Ch App 244.
In relation to the interest issue, counsel for Patrizia submitted that interest should be payable to Patrizia from 26 June 2014, when she became entitled to the balance of the capital of the trust. Counsel relied upon a number of authorities to support his submission that equitable compensation can be ordered for breach of trust, and is a debt or sum certain within the meaning of s 58(1) of the Supreme Court Act 1986 (Vic) (‘Act’), in particular Farrow Finance Company (in liq) v Farrow Properties Pty Ltd (in liq) (‘Farrow’),[11] and Anchen v Mendez Da Costa.[12]
[11][1999] 1 VR 584.
[12][2005] VSC 191.
Senior counsel for Mario and Luciano submitted that the decision of the Court of Appeal in Dimos v Willetts[13] is directly relevant to this question, and binding. I agree.
[13](2000) 2 VR 170.
The decision of the Court of Appeal in Dimos v Willetts[14] is good authority for the proposition that a beneficiary under a trust is not a ‘creditor’ within the meaning of s 58(1) of the Supreme Court Act 1986 (Vic) (‘Supreme Court Act’), and, to the extent that other single judge decisions are relied upon to support a proposition to the contrary (which I do not necessarily consider they do), those decisions ought not be followed. Further, to the extent any doubt which may arise by reason of the decision in Farrow (where Hansen J noted that the question of whether the plaintiff before him was a ‘creditor’ within the meaning of s 58(1) of the Act was not in dispute), or any subsequent decision which post-dated Dimos v Willetts,[15] it is difficult to see how Patrizia is a ‘creditor’ of Marco and Luciano. It may be faintly arguable that Patrizia was a creditor of Latina as at 26 June 2014, but Latina is not the defendant in this proceeding.
[14]Ibid, [107].
[15]Ibid.
Accordingly, I would order that interest be payable to Patrizia on the sum of $224,232.27 pursuant to s 60 of the Supreme Court Act from the date of the commencement of the proceeding, being 7 October 2015, there being ‘no good cause’ to make an order to the contrary. I do not accept the submission advanced on behalf of Marco and Luciano that interest should only be payable from the date that Patrizia filed her statement of claim. First, as submitted by counsel for Patrizia, there is no authority for the proposition that the reference in s 60 of the Supreme Court Act to ‘the commencement of the proceeding’ can be qualified in the manner contended for by Marco and Luciano. Further, I accept there is no good cause for depriving Patrizia of her entitlement to interest from the commencement of the proceeding. When she commenced the proceeding, she did not know what had occurred on 26 June 2014. The fact that the trust had been wound up at a directions hearing on 31 March 2016, with more fulsome details emerging after Marco and Luciano made a summary judgment application on or about 20 May 2016. Patrizia filed her statement of claim on 23 June 2016, alleging that Marco and Luciano had acted in bad faith in causing the trustee to pass the 26 June resolution. There was no relevant delay on the part of Patrizia in bringing forward her case once she became aware of the relevant facts.
Finally, in relation to the costs issue, I do not see any good reason why Patrizia be deprived of half of her entitlement to costs, as contended for by Marco and Luciano. Patrizia claimed that a third of the balance of the assets of the trust as at 26 June 2014, being $1,356,102.85, be paid to her. If she had been fully successful, this would result in a payment to her of $452,034.26. As it turns out, I have found she was entitled to a lesser sum, being $289,101.60, which is just short of two thirds of her claim, by reason of the effective distribution of income to Marco and Luciano in 2013‑2014. However, that finding arose out of a question of construction of the 26 June minute, which took a relatively short amount of time at trial. The primary submission of Patrizia, and the key issue in dispute between the parties, was whether Marco and Luciano had acted in bad faith towards her, upon which she was successful. Marco and Luciano were successful in their claim for rectification of the 26 June minute. However, as I observed in the June reasons, to some extent it was the evidence adduced in support of the rectification claim which helped to open up the line of inquiry to lead to my conclusion that Marco and Luciano had acted in bad faith. Accordingly, only a modest discount is warranted to take into account their success upon this issue, as well as my rejection of Patrizia’s contention that the trust was wound up on 15 March 2013. I will order that Marco and Luciano pay eighty per cent of Patrizia’s costs of the proceeding, including reserved costs.
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