Catanese v La Cava (No 2); La Cava v Catanese

1. [1]

   These proceedings arise out of a dispute as to the beneficial ownership of two properties registered in the names of members of a family. For convenience, and without disrespect, I will refer to them by their given names.

2. [2]

   The properties in question have now been sold by trustees pursuant to orders made by the Court under s 66G of the Conveyancing Act 1919 (“the Sale Trustees”). The dispute between the parties is now a question about their entitlements to the proceeds of sale, which total about $4 million and are being held by the Sale Trustees pending the outcome of the proceedings.

3. [3]

   The properties were acquired at different times. The first property acquired was at Newtown. It was originally owned by Vittorio La Cava (“Vittorio”; also known as “Vic”) and his wife Gloria Lucy La Cava (“Gloria”). A half share in the property had originally been acquired by Vittorio in 1969. Gloria acquired the other half of the property in 1981.

4. [4]

   Vittorio and Gloria had six children: Peter John La Cava (“Peter”); Stephen Michael La Cava (“Stephen”); Sandra Maria Casey (“Sandra”); Marisa Ann La Cava Catanese (“Marisa”); Paul Gerard La Cava (“Paul”); and Vicki Paula Boscov (“Vicki”).

5. [5]

   In 1989, Vittorio and Gloria transferred their combined ownership of the Newtown property to their children, as tenants in common in equal shares. The property was thereafter rented out (if it had not already been rented out) as an investment. Initially it was Vittorio who managed the property and looked after the bank account into which the rent was paid and from which the expenses were paid. Peter helped his father with the management tasks, and over time his role increased.

6. [6]

   In 2007, with the assistance of borrowings secured on the Newtown property and accumulated income derived from that property, another property, at Ultimo, was purchased for rental purposes. The purchase was likewise registered in the names of the children as tenants in common in equal shares, and the two properties were thereafter managed together.

7. [7]

   Beginning in 2019 or thereabouts, Peter handed the management of the properties, including the operation of the rent account, over to Marisa (there appear to have been several bank accounts but for convenience I will for the moment refer to them as a single account). Peter died in May 2021, not long before his mother. His executor was his surviving partner, Robyn McCleary (“Robyn”). Peter left no children and his estate passed to Robyn.

8. [8]

   Gloria died in September 2021. Vittorio is still alive, but he lives in a nursing home and has lost the ability to manage his own affairs. In late May 2023 the New South Wales Civil and Administrative Tribunal made a financial management order under the Guardianship Act 1987 committing the management of his estate to the New South Wales Trustee and Guardian (“NSW Trustee”).

9. [9]

   Robyn obtained a grant of probate for Peter’s estate in December 2021 and in March 2022 her solicitors wrote to the five surviving La Cava siblings. Their letter proceeded on the footing that Peter’s 1/6th share of the property, and the income derived from it, had passed to Robyn. They proposed that the five surviving La Cava siblings buy Robyn out. They also sought copies of the bank statements for the rental account from 2021 onwards.

10. [10]

    Discussions took place between the parties about the buyout proposal, but agreement was not reached. By October, Paul had obtained his own separate legal representation. Marisa and the other three surviving La Cava siblings (Stephen, Sandra and Vicki) retained solicitors of their own. In January 2023 Robyn had Peter’s share of each of the properties formally transferred into her name.

Claims for determination

1. [11]

   The proceedings were originally commenced by Summons in March 2023 as an application for orders under s 66G. The plaintiffs were Marisa, Stephen, Sandra and Vicki. Paul was named as the first defendant and Robyn as the second.

2. [12]

   The orders appointing the Sale Trustees were made by Peden J in May 2023. The Ultimo property was sold for $850,000 and the Newtown property for $3.2 million. The sale of the Ultimo property settled in October 2023, and the sale of the Newtown property settled in early December 2023.

3. [13]

   The proceedings were fixed for hearing in April last year for the purpose of determining the parties’ entitlements to the proceeds of sale of the properties (and the costs of the proceedings). But when the matter came on for hearing, complexities immediately became apparent.

4. [14]

   It had emerged that payments had been made out of the accrued property income to meet Gloria’s funeral expenses and Vittorio’s ongoing nursing home costs (see [78] below). The plaintiffs were contending that such payments were authorised under conditions which had been imposed by Vittorio and Gloria when the children received the Newtown property. The facts were (at least potentially) in contest but the issues had not been defined by pleadings. Furthermore, only the surviving La Cava children and Robyn were party to the proceedings; there was no-one to represent the interests of Vittorio (or those of Gloria’s estate).

5. [15]

   In these circumstances, it was impossible to decide the parties’ entitlements right away. The hearing had to be adjourned to allow for all interested parties to be joined and for pleadings, together with further evidence, to be filed. In the meantime, the Court dealt with a contested application from the Sale Trustees concerning their remuneration: Catanese v La Cava [2024] NSWSC 1661 (“J1”)

6. [16]

   The adjournment of the hearing resulted in Vittorio being joined as the third defendant with the NSW Trustee acting as his tutor. The NSW Trustee was later joined in its own name as fourth defendant, acting as administrator ad litem of Gloria’s estate (of which Vittorio was the principal beneficiary). A statement of claim (amended on several occasions) was filed for the plaintiffs. A cross-claim was filed by the NSW Trustee on behalf of Vittorio and as administrator of Gloria’s estate. Numerous further affidavits were filed.

7. [17]

   The process of completing the pleadings and supplementing the evidence was a very protracted one, and the hearing could not be rescheduled until September this year. It began on 8 September. The plaintiffs, Robyn, and the NSW Trustee were represented by counsel. Paul (who, by this stage, was not legally represented) did not appear.

8. [18]

   The plaintiffs’ claim was based on conversations which allegedly took place before the transfer of the Newtown property to the La Cava children in 1989. In those conversations the parents were said to have imposed conditions on the transfer which required the children to hold the property for the parents’ lifetimes, using the income from it to pay off the mortgage on the property and, if necessary, to fund the parents’ retirement needs. After their deaths, the children would be free to do what they wished with it.

9. [19]

   The plaintiffs alleged that the parties’ subsequent treatment of the Newtown property (and acquisition of the Ultimo property) reflected the alleged conditions. They contended that the effect of the conversations was that the properties were held on trust for these purposes. The trust was said to arise expressly, or by way of resulting or constructive trust.

10. [20]

    The plaintiffs’ contention was disputed by the NSW Trustee. The Trustee’s position was that no valid express trust (or constructive trust) had been created. But the transfer had not been an absolute gift either. The Trustee contended that, in the absence of a valid express trust or an absolute gift, the consequence was a resulting trust in favour of Vittorio and Gloria as transferors.

11. [21]

    Robyn resisted the trust claims by both the plaintiffs and the Trustee. Her contention was that the transfer of the Newtown property was a gift, and, at most, any conditions imposed by the parents were only expectations and were not intended as binding obligations.

12. [22]

    Robyn did, however, accept through her counsel that if the Newtown property was found to have been acquired on trust, the Ultimo property, having been acquired using funds derived from the Newtown property, was subject to the same trust. Counsel also accepted that any such trust would bind the share of the properties which Robyn had inherited from Peter. As a result, the outcome of the case came down to whether the Newtown property had been acquired by the children in 1989 on some form of trust, or as an absolute gift.

13. [23]

    There were difficulties with the contention that the Newtown property was subject to a trust in the manner claimed by the plaintiffs. A private (non-charitable) trust must be for persons, not purposes. It was difficult to see how, if the parents had reserved an entitlement to draw on the property should they need financial support in future, the interests of the parties could be said to have been defined with sufficient certainty to give rise to a trust (whether an express trust or a common intention constructive trust) which the law could recognise and enforce. Characterising what had happened as a “failed joint endeavour” (if possible at all) would not have resulted in the imposition of a constructive trust in favour of the children, but in favour of Vittorio and Gloria, who had contributed the property to the “endeavour” in the first place (cf Makaritis v Makaritis (No 2) [2022] NSWSC 1690 at [172]). In the course of the first day’s hearing, the plaintiffs’ claims were abandoned by counsel, and I made a formal order dismissing those claims (and reserving the costs of them).

14. [24]

    The hearing then proceeded as a hearing on the NSW Trustee’s cross-claim. Robyn opposed the claim and continued to maintain that the 1989 transfer was an unconditional gift. Counsel for the plaintiffs, as cross-defendants to the Trustee’s claim, took the same position.

Summary and analysis of the evidence

1. [25]

   Vittorio was born in September 1934 and Gloria in October 1937. Peter was their oldest child. He was born in January 1962. Stephen followed in December 1963, then Sandra in November 1965, Marisa in July 1969, Paul in January 1972 and Vicki in December 1973. The La Cava family home was at Livingstone Road, Marrickville.

2. [26]

   Vittorio and his brother Antonio purchased the Newtown property in August 1969 as tenants in common. The purchase price was $36,000.

3. [27]

   The property was located on King Street, which is a well-known shopping strip in inner city Sydney. On it was a three-storey building. There was a shopfront on the ground floor and residential accommodation on the first and second floors. Vittorio and Antonio operated a fruit shop from the ground floor, and it may be that they took over an existing business; in the transfer both the transferors and Vittorio and Antionio as transferees were described as “fruiterers”.

4. [28]

   Vittorio and Antonio operated the fruit shop business together for some time before Antonio sold out and the business was thereafter continued by Vittorio (in his own name or perhaps in his and Gloria’s joint names). In September 1981 Antonio transferred his half share of the property to Gloria. The transfer recorded a purchase price was $80,000.

5. [29]

   There is no evidence as to how the purchases of Vittorio’s half share of the property, and then Gloria’s half share, were financed. But in February 1985 a mortgage was registered over the property by Esanda Limited. Esanda was a finance company which was a subsidiary of the ANZ Bank.

6. [30]

   The Esanda mortgage was a standard “all moneys” mortgage under which both Vittorio and Gloria, as mortgagors, were the borrowers; there was no separate loan agreement in evidence (and there may not have been one). The facility limit was not specified in the mortgage instrument, so the amount borrowed from Esanda is unknown.

7. [31]

   The transfer of the Newtown property from Vittorio and Gloria to their children took place in July 1989. At the time, Vittorio was 54 and Gloria was 51. Sandra (then aged 23) had been married the previous November and was living with her husband elsewhere in Marrickville. The transfer gave the addresses of all the other children (Peter, then aged 27; Stephen, then aged 25; Marisa, who turned 20 during that month; Paul, then 17; and Vicki, then 15) as the family home in Marrickville. Stephen, however, deposed that he “believed” that Peter had actually moved out by then.

8. [32]

   The transfer was expressed to be subject to two prior encumbrances: the Esanda mortgage and a lease which was registered on the same date. The lease itself is not in evidence, so the identity of the lessor is not known

9. [33]

   A firm of solicitors at Dulwich Hill, LP Alidenes & Co, appears to have acted for both the parents and the children in effecting the transfer. The signatures of Vittorio and Gloria as transferors were witnessed by Mr Angelo D’Agata of that firm. The children’s signatures as transferees were witnessed by another solicitor, but apparently of the same firm.

10. [34]

    At some point Vittorio ceased to operate the fruit shop himself and leased the property out. There is no documentary evidence which fixes when this happened; I discuss the affidavit evidence on the subject in more detail below. But it clearly happened either before, or at the time of, the 1989 transfer.

11. [35]

    Thereafter, Vittorio worked as an employee in a number of other businesses before retiring from paid employment. Vicki placed her father’s retirement as having taken place about the time she was married, which was in 1994, and this evidence was not challenged or contradicted by anyone else. Gloria did not undertake paid employment: she was the homemaker in the family.

12. [36]

    A historical search for the Newtown property records that there were various further leases of the property after 1989. It also records that the Esanda mortgage was discharged in February 1995. The property then remained unencumbered until it was mortgaged to ANZ in 2007 to secure a loan for the purchase of the Ultimo property.

13. [37]

    The purchase (a strata title unit in Macarthur Street, Ultimo) was completed in July 2007. The purchase price was $500,000, and the purchase was undertaken in the name of the six children as transferees. Thereafter, the title of the two properties remained in the names of the six children until the transmission of Peter’s share to Robyn and the order vesting the properties by the Sale Trustees (see [7] above).

14. [38]

    As already noted, Vittorio now lives in a nursing home. According to Stephen, by the time Vittorio was admitted to the home, he was showing early signs of dementia. There is some uncertainty about when the admission took place. Stephen placed it as having happened in 2016. According to Marisa, her father was still living at Livingstone Road and participating in decision-making in mid-2019 (see [69] below). None of the parties made any submissions to me on how this conflict in the evidence should be resolved.

15. [39]

    Following Vittorio’s admission to the nursing home, Gloria remained at Livingstone Road until she too moved to the same home. The move took place only a few months before she died in September 2021.

16. [40]

    As already mentioned, Vittorio is still alive, but it was impossible to obtain any evidence from him for the purposes of the proceedings. Gloria and Peter have both died.

17. [41]

    An extensive collection of affidavits was filed on behalf of the plaintiffs in support of their trust claim. This included evidence from Stephen, Sandra, Marisa and Vicki.

18. [42]

    The plaintiffs also obtained affidavits from the solicitor, Mr D’Agata, and from Ms Kim Passas. Ms Passas is a proprietor of an accountancy firm named Passas & Co which acted for Vittorio and the other members of the La Cava family. Her evidence was mainly concerned with the accounting and taxation procedures which were applied for the income and expenditure associated with the properties.

19. [43]

    Following the abandonment of the plaintiffs’ trust claim, which took place before any evidence had been read, the plaintiffs’ affidavits were picked up by counsel for the NSW Trustee and read in support of the Trustee’s cross-claim. Ms Passas, Stephen, Sandra, Marisa and Vicki attended the hearing, gave some short supplementary evidence in chief in answer to questions from counsel for the Trustee, and were cross-examined by counsel for Robyn. Counsel for the plaintiffs, as cross-defendants to the Trustee’s claim, did not cross-examine.

20. [44]

    Not surprisingly, Mr D’Agata deposed that he was unable to recall any details of the 1989 transfer, and he confirmed that the Alidenes file would have been destroyed. He was not required to attend, and his evidence was read without objection.

21. [45]

    None of the plaintiffs’ witnesses had their credit attacked. It was accepted that they were doing their best to recall events, most of which were long in the past. Not surprisingly, however, there was argument about how useful their evidence was in resolving the factual issues before the Court. I will return to the question when considering the parties’ submissions on the resulting trust claim, after having summarised the evidence.

22. [46]

    Robyn gave affidavit evidence in response to the plaintiffs’ affidavits. She attended the hearing and was briefly cross-examined. There was no evidence from Paul.

23. [47]

    There was little evidence on this subject. Marisa deposed:

24. [48]

    The date of the transfer of Antonio’s half share to Gloria is fixed by the documentary evidence as September 1981 (see [28] above). Marisa was then 12 years old. If, following that transfer Vittorio and Gloria operated the fruit shop for a period of time, it is somewhat surprising that Marisa’s “earliest memory” is that the shop was rented out, although it is possible that Antonio left the business sometime before the property was transferred.

25. [49]

    In his affidavit, Stephen deposed that he could remember his father dissolving the family fruit shop business and renting out the Newtown property shopfront to a Mr John Homsi who continued to operate it as a fruit shop. Stephen deposed that thereafter his father continued to manage the property himself because he did not trust real estate agents. Stephen deposed that he remembered going with his father to collect rent from the tenants and banking the rent at the ANZ bank.

26. [50]

    Stephen placed the dissolution of the family fruit shop business as having taken place “sometime after 1989”. But the affidavit was structured in such a way as to suggest that it occurred before the transfer of the property. Stephen was not asked about this inconsistency when he gave evidence.

27. [51]

    Sandra also deposed that for a time her father operated a fruit shop from the property, he then ceased operating the business and rented the property out to a tenant who operated a fruit shop there. Again, her affidavit was structured so as to suggest that this occurred before the transfer took place in 1989.

28. [52]

    On balance, it seems more likely that the La Cava fruit business had been terminated for some time before the transfer in 1989. But nothing ultimately turns on this. I think it is clear that Vittorio did not operate the business after the transfer. If not before, he ceased to operate the business at that point.

29. [53]

    Stephen deposed (emphasis added):

30. [54]

    Sandra deposed (emphasis added):

31. [55]

    Marisa deposed (emphasis added):

32. [56]

    Vicki deposed (emphasis added):

33. [57]

    Stephen was cross-examined on his account of the 1989 conversation with Vittorio in the following way:

34. [58]

    Counsel did not in this passage suggest that Stephen’s recollection of the conversation was inaccurate. I will return to the point about the need for assistance being “expressed as a hope” and about the family being close when I consider the parties’ submissions, below.

35. [59]

    The cross-examination of Sandra and Marisa followed a similar line. It was limited to whether their current understandings about how the property could be used derived from what was reportedly said by Vittorio (see below). The only direct challenge was to Vicki’s account; counsel put to her that she could not recall the conversation with her father, to which she replied that she did not know.

36. [60]

    It was common ground between the La Cava family witnesses, that following the transfer of the Newtown property in July 1989 the management of the property, including the operation of the rental account, was undertaken by Vittorio (if, indeed, he was not already doing this before the transfer). In this Vittorio was assisted by Peter, and, over time, operation of the account and the day-to-day management of the properties, at least, was gradually taken over by Peter. According to Stephen, he helped on occasion with repair work at the property (Stephen is, by trade, an electrician) but he did not claim to have been involved in any management or administration tasks.

37. [61]

    Stephen deposed that, from “about 1993”, his father “had nothing to do with managing” the Newtown property and that Peter “solely looked after the money and paperwork”. But later in his affidavit, he deposed that in about 1996 he was asked by Vittorio for his consent to Vittorio using money from the rent account to pay for a lawyer for Paul, who had been charged with a criminal offence. Stephen deposed that he gave his agreement but did not know how much was spent.

38. [62]

    Stephen also deposed that his father’s approval was sought and given to the purchase of the Ultimo property in 2007. According to Stephen, the idea to purchase a further property came from Ms Passas and was intended to reduce the tax being paid by the family members. The advice was given in a conversation between Ms Passas, Peter and Stephen. The idea was then approved by the family around the dinner table.

39. [63]

    The searches for a new property were undertaken by the La Cava children, but Stephen deposed that when they found the Ultimo property there was another family meeting at which they presented it to their parents and received approval from them for the purchase. According to Stephen:

40. [64]

    Stephen also deposed:

41. [65]

    There was no dispute that Vittorio gradually handed over management of the properties to Peter, although there was a question about when the handover was completed. As will be seen, Ms Passas’ evidence was that it did not happen until much later. In his supplementary evidence at trial, Stephen acknowledged that, as he was not involved himself in the management and administration of the properties, he had no basis, as a matter of personal knowledge, for saying that his father had no involvement after 1993.

42. [66]

    On Stephen’s own evidence, his father was still involved in strategic decision-making in 2007 when the Ultimo property was acquired. Stephen did not deny his sisters’ evidence that Vittorio was consulted about the handover of management and administration from Peter to Marisa a decade later. On any view, it would be incorrect to say that Vittorio had no involvement with the properties whatsoever after 1993.

43. [67]

    Stephen’s evidence about that date could be read as a reference only to day-to-day management and administration, but I am still inclined to prefer Ms Passas’ evidence, which was based on direct knowledge, that Vittorio was giving her instructions up until about 2016. If he did, however, cease to be involved with the taxation instructions or the operation of the bank account before that date, that does not matter for present purposes.

44. [68]

    There was no dispute that Peter later handed over management of the properties (including operation of the bank accounts) to Marisa. According to Stephen, Peter became ill with the cancer which eventually caused his death in 2018 or 2019. Stephen said that Marisa volunteered to take over management of the properties in “about 2018 or 2019”. He did not remember discussing it with Vittorio or Gloria.

45. [69]

    Marisa’s account of this was as follows.

46. [70]

    On Marisa’s account, Vittorio was involved in the hand-over decision, and was living at Livingstone Road at the time. This is not consistent with Stephen’s evidence that Vittorio went into the nursing home three years before. Vicki gave evidence of a conversation in similar terms to that given by Marisa, but she placed the conversation as having happened “in about 2017 or 2018” and did not expressly say it occurred at Livingstone Road.

47. [71]

    Stephen was only briefly cross-examined on this topic, and said:

48. [72]

    The inconsistencies were not addressed in the oral evidence. Vittorio may not have gone into the nursing home as early as 2016, and, by the same token, the handover may have begun before June 2019, but nothing turns on the precise dates.

49. [73]

    Bank records: As already mentioned, a loan was taken out from ANZ to purchase the Ultimo property in 2007. The amount borrowed was $440,000 and the repayment term was 15 years.

50. [74]

    In evidence are bank statements for the loan account from January 2018 onwards. The earliest statement shows an opening debit balance of $168,000. There was also another account or accounts with both St George Bank (“SGB”) and ANZ which were used for the deposit of rent. It appears that over time funds accumulated in those accounts were applied to the loan account, thus gradually reducing it. By the time Peter died in May 2021 the balance outstanding had been reduced to $26,000. Regular repayments of the ANZ loan continued thereafter, and the loan balance was eventually cleared in January 2022.

51. [75]

    Also in evidence were bank statements for at least some of the rent accounts from 2017 onwards. These showed that from time to time the rent monies were used for purposes other than paying expenses of the properties. Four points emerged.

52. [76]

    First, in cross-examination Marisa was taken to several payments made in 2018 which were described as having been made for the benefit of Vittorio. These particular payments appear to have been reimbursed shortly afterwards. But it remained unclear whether there were other such payments which had not been reimbursed.

53. [77]

    Second, in the first half of 2019, payments of $3,000 were made to each of the La Cava siblings apart from Paul. According to affidavit evidence from Marisa, these payments were made as an “equalisation” to reflect the fact that Paul had been living at the Newtown property without paying rent. Ms Passas in her evidence referred to further payments of $4,000 each made to each of the other La Cava siblings in the second half of 2018. These payments were not addressed in the evidence.

54. [78]

    Third, counsel for Robyn submitted that analysis of the account statements showed that some significant payments were made by Marisa from the rental account after mid-2021 in favour of other members of the family. In August 2021 $60,000 was paid for Gloria’s admission bond to the nursing home (this was said to have been later rolled over to pay Vittorio’s bond) together with $15,000 towards her nursing home expenses. A further $11,000 was paid in September 2021 for Gloria’s funeral expenses. From July 2021 to May 2023 a total of $39,000 was paid towards Vittorio’s nursing home expenses. Further payments were made between November 2022 and April 2023, totalling $51,000, towards the plaintiffs’ costs in and prior to these proceedings.

55. [79]

    Fourth, Robyn acknowledged that the sum of $11,000 had been paid out of the rental account to her shortly after Peter’s death. She deposed that $6,000 was repaid but agreed that $5,000 was outstanding. She indicated that she proposed to set this off against the share of the proceeds of the property which she expected to receive.

56. [80]

    Ms Passas’ evidence: Ms Passas deposed that Passas & Co was founded by her father, Mr Con Passas, in around 1974. Initially, he operated as a sole practitioner, but later brought Ms Passas’ sister, Angela, and her husband, Phillip, who are both accountants, into the practice. Later still Ms Passas joined. This was in March 2002. Mr Con Passas has now retired.

57. [81]

    Ms Passas described the “members of the La Cava family” as “long standing clients” of the firm. She took over the management of their file from Angela in about 2006. The retainer included acting as tax agents for all of the individual members of the family, and Ms Passas continues to act for the surviving La Cava siblings (apart from Paul).

58. [82]

    Ms Passas deposed that from the time she took over management of the file, all of her instructions came from Vittorio. Over time Peter became involved as well alongside Vittorio, and, eventually, by about 2016, the instructions were coming from Peter alone. From around 2021 Ms Passas’ instructions came from Marisa.

59. [83]

    Ms Passas deposed that during the period she was responsible for the family’s tax affairs, rental income derived from the Newtown property (and later the Ultimo property), and deductible expenditure such as repair and administration costs, were treated for taxation purposes as income and expenditure of a partnership consisting of the six La Cava siblings. This required the partnership to have an Australian Business Number (ABN), both for income tax and GST purposes.

60. [84]

    Properly speaking, the La Cava siblings were co-owners of the properties, not partners. There was never any formal partnership agreement between them. Nevertheless, the use of a partnership tax registration to cover the income and expenditure from the properties was apparently thought to be a convenient way of managing their tax obligations.

61. [85]

    Ms Passas deposed that, by the time she took over management of the family’s tax affairs, an ABN had already been obtained for the “partnership”. In fact, a search shows that the ABN in question was registered at the time the GST was introduced (from 1 July 2000). Before that date a partnership tax file number would have been required for income tax purposes, but there is no evidence before me about this. Ms Passas deposed that she was unable to find any record in the file of when the decision to register the “partnership” for tax purposes was made or what advice was given to the La Cavas on that subject.

62. [86]

    As Ms Passas explained, a partnership is not itself a tax paying entity for income tax purposes. Rather, the net income of the partnership is recorded in the partnership tax return and allocated between the partners, but the partners then include their shares in their individual tax returns, together with any other income which they derive, and their tax is assessed and paid accordingly.

63. [87]

    In the present case this meant that the net income from the Newtown and Ultimo properties was allocated equally between the six La Cava siblings with a one sixth share being included in each sibling’s individual tax return. As a result, the siblings incurred additional income tax for which they were liable, over and above the tax attributable to their other incomes, but the amounts differed according to how much other income they had. Ms Passas deposed that her practice was to calculate the additional tax and arrange to have it paid from the rental account. She specifically deposed that this practice derived from instructions originally given to her by Vittorio.

64. [88]

    As Ms Passas explained, the distribution of “partnership” income from the properties for tax purposes to the La Cava siblings gave rise not only to an obligation to pay income tax after the end of the financial year, but also to pay instalments of future income tax on a PAYG basis. Ms Passas deposed that she arranged for the payment of these instalments out of the rental account. Any credits or refunds resulting from the assessment for the relevant year being lower than the amount of the instalments were similarly credited back to the rental account.

65. [89]

    In a proper legal partnership, the net income belongs to the partners and would either be paid out or credited to the partners in the partnership accounts. Those accounts would also debit the partners with any drawings made by them.

66. [90]

    But in the present case the La Cava siblings’ shares of the rental income were not distributed among them (apart from the amounts paid directly to the ATO for additional income tax and PAYG instalments attributable to the “partnership” income). Nor were they recorded as credits. In fact, no partnership accounts were drawn up at all. Ms Passas therefore did not need to concern herself with any drawings by the “partners” (or with any other expenditure which was not an allowable deductible against the income from the properties).

67. [91]

    Ms Passas deposed that, after she took over managing the family’s tax affairs, there was no complaint from any of the La Cava siblings about the lack of cash distributions from the rental monies until the issue was “first raised” by Paul “in about November 2017”. Ms Passas did not give any further detail of what Paul said and what her reaction was. But the practice did not, it seems, change. Presumably it was at some point after this that Paul ceased to retain Ms Passas for the purposes of his individual tax affairs, but there is no evidence of precisely when that happened.

68. [92]

    Ms Passas deposed that she was aware of payments totalling $7,000 each having been made to each of the La Cava siblings except Paul in the 2018-2019 financial year. She also acknowledged that Marisa had later made payments for her parents’ nursing home expenses. But, consistently with the practices which she had described, she did not concern herself with these payments. To the extent that any surplus built up in the rental account she saw it as a matter for the family members to decide among themselves what to do with it.

69. [93]

    Ms Passas was also asked about some statements made to her by Vic:

70. [94]

    Peter died before the end of the 2020-2021 financial year. The partnership return lodged for that year, and the return for 2021-2022, nevertheless allocated one-sixth of the net income from the properties to him. In 2022-2023 the allocation was made to Robyn. I assume that Mr Passas lodged Peter’s individual tax returns up to 2019-2020, but not thereafter. There was no evidence about whether income allocated to him from 2020-2021 onwards was included in returns for his estate or for Robyn.

71. [95]

    As already noted, the orders appointing the Sale Trustees were made in May 2023. This was towards the end of the 2022-2023 tax year. Rental income would have ceased from that point, but interest may have continued to accrue on the monies credited to the rental account for the period prior to the Sale Trustees’ appointment. There was no evidence before me concerning the lodgement of any partnership returns for 2023-2024 onwards. Nor was there any evidence about the lodgement of individual tax returns for the four remaining La Cava siblings for whom Ms Passas continues to act.

72. [96]

    Marisa deposed:

73. [97]

    In answer to supplementary questions from counsel for the NSW Trustee, each of Stephen, Sandra and Vicki said that they had the same understanding. That understanding also extended to the Ultimo property once it was acquired.

74. [98]

    In cross-examination of the La Cava siblings, counsel did dispute the existence of these understandings. The point made by counsel concerned how the understandings had been derived. Counsel put to Sandra that the “condition” that the property could not be sold during Vittorio’s and Gloria’s lifetimes was not something which Vittorio had imposed, in so many words, in 1989. She replied that it was her “understanding; what I took away from the conversation”.

75. [99]

    Similarly, Marisa acknowledged that the condition in question did not “arise in” her account of what her father said. She described the condition as “part of the “breakdown” of it. Counsel put to her that the conditions were “really only her assumptions” but she did not agree.

76. [100]

    The nature of Stephen’s understanding was also touched on in his cross-examination. Counsel asked Stephen about the accounting arrangements described by Ms Passas which resulted in him having to pay additional tax on net income from the property which he did not actually receive. He gave the following evidence (emphasis added):

Resulting trust

1. [101]

   The arguments concerning the resulting trust claim fell to counsel for the NSW Trustee on one side and counsel for Robyn on the other. Counsel for the plaintiffs announced earlier in the proceedings that they would “accept” the contention being advanced for Robyn that the transfer of the Newtown property was an absolute gift, but presented no further submissions on the question (apart from a brief reference to the question of income splitting, referred to below). As already mentioned, Paul did not participate.

2. [102]

   There was little debate between counsel about the applicable legal principles. Counsel for the Trustee referred me to Bosanac v Federal Commissioner of Taxation (2022) 275 CLR 37, the most recent High Court decision on resulting trusts, as well as some other earlier authorities. Counsel for Robyn did not refer to any resulting trust authorities at all in her submissions. As well as Bosanac and the other authorities referred to by counsel for the Trustee, I have derived assistance from an article by Professor Swadling (William Swadling, “Explaining Resulting Trusts” (2008) 124 LQR 72) illuminating. That article is cited in a number of the judgments in Bosanac.

3. [103]

   The authorities recognise a number of different categories of resulting trust. Counsel for the Trustee contended that this case fell into two of those categories. One was a resulting trust presumed to arise from the voluntary conveyance of property (referred to by Swadling as a “voluntary conveyance resulting trust”). The other was a resulting trust arising by operation of law from the failure of an express declaration of trust (referred to in the authorities as an “automatic” resulting trust; Swadling (at page 73) preferred the term “failed trust” resulting trust).

4. [104]

   In support of the voluntary conveyance resulting trust contention, counsel for the Trustee advanced the following propositions. I did not understand these propositions to be disputed.

   1. (1)

      The conveyance of the Newtown property from Vittorio and Gloria was a voluntary one. A trust is thus presumed in favour Vittorio and Gloria as transferors unless that presumption is rebutted by evidence.

   2. (2)

      The question is one of the intention of Vittorio and Gloria as transferors and putative settlors. This is assessed as at the time of the transfer: Bosanac at [113].

   3. (3)

      Subsequent conduct, while not directly relevant itself, may be a basis for inference as to what their intention was at the time: Guirguis (by his tutor Laila Guirguis) v Girgis [2021] NSWCA 156.

   4. (4)

      For this purpose, the uncommunicated subjective intentions of Vittorio and Gloria are not relevant. The investigation is concerned with their intention as objectively manifested: Foundas v Arambatzis [2020] NSWCA 47.

   5. (5)

      Where, as here, the transfer is from parents to children, the so called “presumption of advancement” comes into play. This is not a true presumption, but rather a circumstance which may be taken into account in determining whether the presumption in favour of a resulting trust has been rebutted: Bosanac at 64-65.

5. [105]

   Counsel submitted that the evidence, so far from rebutting the presumed resulting trust in favour of Vittorio and Gloria, supported it. Counsel identified numerous factors in the evidence which, so he contended, led in this direction. They may be summarised as follows.

   1. (1)

      There was express evidence from four of the La Cava children of conversations with Vittorio prior to the transfer of the Newtown property. In those conversations, Vittorio had made it clear that the transfer was not an unconditional gift, but rather was to be applied for defined family purposes, and, during his and Gloria’s lifetimes, was to be preserved in case they needed it for their financial support.

   2. (2)

      Following the transfer, Vittorio managed the property, effectively as his own. Even after handing over day-to-day management to Peter, and then Marisa, important decisions were not made without his (and Gloria’s) consent. The clearest example of this was the purchase of the Ultimo property.

   3. (3)

      The idea that the transfer presented a gift was also inconsistent with the family circumstances at the time. The Newtown property represented Vittorio and Gloria’s sole asset outside the family home in Marrickville. The children were then young (indeed, the two youngest still had not turned 18). It was hardly likely that Vittorio and Gloria would have intended to give them the responsibility and benefit of the property in those circumstances.

   4. (4)

      As part of Vittorio's ongoing management of the property, the handling of the rent monies and the taxation treatment were not consistent with the children having outright ownership of the property.

   5. (5)

      This was consistent with the understandings of the La Cava siblings as recorded in their evidence. Those understandings had a dual significance. They could be used as a basis for inference for Vittorio’s beliefs in 1989, as communicated to his children. They were also, according to counsel, “directly supportive of the Trustee’s case as “admissions against interest”.

6. [106]

   Counsel submitted that taking these factors together, the presumption of a resulting trust in favour of Vittorio and Gloria had not been rebutted, and had indeed been confirmed. Alternatively, counsel relied on automatic resulting trust. Counsel submitted that the transfer, not being intended as an unconditional gift, was best characterised as a transfer purportedly on trust, the terms of which were not defined, or sufficiently defined, with any certainty, and accordingly which failed.

7. [107]

   Counsel for Robyn placed a different interpretation on the evidence. The following points emerged from her submissions.

   1. (1)

      It was not realistic to expect the La Cava siblings to be able to recall the precise language used by Vittorio in 1989. And, to the extent that the evidence could be relied upon, it suggested that Vittorio was hoping or expecting that his children would use the property to support him and his wife if necessary, rather than imposing any obligation upon them to do so. Counsel referred in particular to the reference in Stephen’s evidence to Vittorio saying that he “hoped” that they would provide such support.

   2. (2)

      Furthermore, the only talking, on the evidence, was done by Vittorio. There was, in counsel’s submission, no evidence that Gloria’ s intentions were the same.

   3. (3)

      The evidence of the children’s understanding was irrelevant. At most it proved that, long after the relevant events, the La Cava siblings had reached some sort of informal agreement amongst themselves concerning the use of the Newtown and Ultimo properties, and the payment of $3,000 to each of the children in 2019 was inconsistent with any obligation to apply the monies solely for the parents’ benefit.

   4. (4)

      Contrary to the submission from counsel for the NSW Trustee, there were plausible reasons why Vittorio and Gloria might have wanted to dispose of the Newtown property. One possibility was that they wanted Vittorio (who was then over 50) to be able to claim the pension. Another possibility was “income-splitting”.

8. [108]

   The point about income splitting, however, was vehemently rejected by counsel for the plaintiffs. In his only submission on the resulting trust claim, he asserted that there was no basis for whatever for supposing that that had been part of the thinking by the parties in 1989.

9. [109]

   In Newcastle City Council v Kern Land Pty Ltd (1997) 42 NSWLR 273, Windeyer J had to consider a claim that a resulting trust had arisen from a voluntary transfer of Torrens title land at Newcastle. His Honour rejected the claim on three specific grounds. One of those grounds was that, having referred to competing views on the question, his Honour concluded that a voluntary conveyance resulting trust could not arise over Torrens title land because of the provisions of s 44(1) of the Conveyancing Act 1919: see Newcastle City Council at 280G-281F. But this point, which John Dyson Heydon, Jacobs’ Law of Trusts in Australia (8th ed, LexisNexis) 2016 describes as “somewhat controversial” at [12-20], was not taken in the present case.

10. [110]

    My conclusions on the competing factual submissions of counsel are as follows.

11. [111]

    The choice before the Court is essentially between, on the one hand, an absolute gift, and on the other hand, a gift subject to conditions that were intended to be binding. It may be accepted that it would be unrealistic to expect the surviving La Cava siblings to recapture precisely what was said to them by Vittorio prior to the transfer of the Newtown property, 35 years ago. But it does not follow that their evidence is of no value in resolving the factual issue in the present case.

12. [112]

    Taken in isolation, the reference in Stephen’s account to Vittorio “hoping” that the children would use the properties to support him and Gloria if necessary might appear to have been merely a statement of motive or expectation which did not qualify the absolute nature of the gift: cf. Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 418. But that reference does not stand on its own. Stephen described Vittorio saying, in express terms, that the rent money could not be used “as a private piggy bank” ([53] above). I do not see that express statement as having been cancelled out by a later statement of hope or expectation that it will be complied with.

13. [113]

    And Sandra, the next oldest of the siblings to give evidence, recalled a similarly explicit statement being made to her that the money could not be used for her own purposes. There was no suggestion in her case of any qualification to the statement which might suggest it was a matter of hope or expectation only. Marisa too reported that her father told her that the rent money was to be used for supporting her parents if they needed it.

14. [114]

    More broadly, there is no suggestion in any of the witnesses’ accounts that the property was to be an absolute gift. Rather, Vittorio was at pains to tell his children what was expected of them and obtain their acceptance of that before proceeding with the transfer. His whole approach emphasised the conditional nature of the transfer.

15. [115]

    I agree that the ages and financial circumstances of the parties, and especially the youth of the La Cava children, is a circumstance which tells against an absolute gift of the property having been intended. But it is necessary to consider the suggestion by counsel for Robyn that the transaction might have been motivated by a desire to qualify for some favourable taxation treatment or social security benefits. In such a case, if unconditional divestiture is required to obtain that benefit, the court may conclude that that was what the donor truly intended.

16. [116]

    But in the present case I do not find counsel’s suggestion that the transfer might have been motivated by a desire to qualify for the aged pension very persuasive. Vittorio did not in fact stop working until five years after the transfer and even then, he might not have necessarily qualified for the aged pension. There is nothing in the evidence to suggest that this played any part in the decision to make the transfer.

17. [117]

    Superficially, a desire to split the income from the Newtown property six ways, so as to take advantage of multiple tax thresholds, appears more plausible. But on analysis the supporting detail is lacking. Whether splitting the Newtown property income among the children resulted in a tax saving, and, if so, how much, would have depended upon various matters, such as the level of tax deductible expenditure on the property (including the level of interest payments on the Esanda loan), what other taxable income was being derived by other family members, and what the prevailing tax rates were on their income (noting that two of the children were under 18 and may have been taxed at higher marginal rates on that account). There is no evidence about any of these matters.

18. [118]

    In the end, the suggestion was faintly put. Counsel said only that it might be an explanation for the transfer. She did not squarely ask me to infer that in fact it was. I do not think that the evidence allows me to draw any firm conclusion to that effect.

19. [119]

    As to Gloria’s involvement, there is actual evidence of her participation in the meetings in which Vittorio explained the transfer plan to the children. It was not necessary for her to say anything expressly associating herself with what Vittorio said. That was clear from the circumstances.

20. [120]

    Nor indeed would it have been necessary for Gloria to have attended all of the discussions. I infer from the circumstances described in the evidence that when Vittorio told the children what was required of them, he spoke on her behalf. Gloria’s ongoing assent to what had been done and how the property was managed is clearly demonstrated by the fact that she was consulted about, and agreed to, the purchase of the Ultimo property in 2007.

21. [121]

    I agree that Vittorio’s ongoing role in managing the Newtown property and operating the bank account also supports the submissions by counsel for the Trustee. What is striking about the management evidence is the long period of continuity from 1989 onwards, extending (subject to Peter assuming day-to-day management of the property and operation of the bank account) up to the purchase of the Ultimo property in 2007, and beyond. Stephen’s evidence makes it clear that Vittorio’s management, and his practices with respect to the bank account, had been established at or before the transfer took place in 1989. The evidence shows Peter and Marisa performing the same functions, and using a bank account with the same bank (among others) 30 years later.

22. [122]

    The accounting and taxation evidence tells the same story of continuity. There is direct evidence from Ms Passas of the practice followed from 2006 onwards, but there is every reason to infer that that practice was established in 1989 or soon thereafter.

23. [123]

    There are a number of suggestive features of the accounting and taxation evidence. In the first place, it needs to be remembered that the transfer was subject to the mortgage; no fresh loan agreement was entered into between Esanda and the children. This meant, as counsel for Robyn accepted, that to the extent that rent monies received by the children as owners were being applied to the repayments under the Esanda mortgage, they were being applied to liabilities of Vittorio and Gloria as the original mortgagors and the borrowers.

24. [124]

    Secondly, although a partnership structure was ostensibly adopted, this was for the payment of tax only. No partnership accounts were ever drawn up. The only “drawings” received by the children as “partners” (at least until 2018-2019) were the payments of additional tax.

25. [125]

    This leads to a third point. The account was conducted more as if it were a trust account, rather than a partnership trading account representing a business venture by the children in their own right. The tax payments reinforce this: the thinking appears to have been that the children, who held the legal title and therefore came under the tax liabilities associated with the income, should be indemnified against the tax liabilities they incurred from doing so, but no more than that.

26. [126]

    I do not think that Stephen’s evidence about the use of the account to pay legal fees for Paul ([61] above) makes any difference. The idea clearly came from Vittorio. There is no evidence that it was even discussed with any of the other children. The overall impression, to my mind, is that Vittorio was using the money in the bank account for his own purposes, effectively as a gift to Paul.

27. [127]

    Nor, in my view, does the making of the payments in 2018-2019 to make up for Paul’s failure to pay rent alter the picture. They took place at a very late stage. They were apparently made on an ad hoc basis, in response to a specific issue, and the established practice then reasserted itself. Furthermore, there is no evidence from Peter (who apparently was responsible for the payments) about what considerations impelled him to make them. For all the Court knows he consulted Vittorio (or Gloria) beforehand.

28. [128]

    The submission by counsel for NSW Trustee that the La Cava siblings evidence as to their understandings amounted to an “admission against interest” is problematic in the light of what was said in Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317 at [66]-[71]. An informal admission can only be binding as an admission of fact. In the present case it is impossible to say (and counsel did not try to identify) what factual content the so-called “admissions against interest” had.

29. [129]

    I did not, however, understand there to be any dispute that the La Cava siblings’ shared understanding about their obligations might still be relevant as a basis for inference about what they agreed with their parents in 1989. In this regard I think the points made by counsel for Robyn in cross-examination fall short of the mark. The shared understanding was not “just an assumption”. When, as is clearly the case here, it has been sustained continuously since the original transfer was made, a period of decades, it provides a rational basis for inferring that conditions to that effect were stipulated for and agreed to at the time. In this regard, Stephen’s reference in cross-examination to the property being a “legacy” is illuminating: it clearly conveys the idea that the benefit of the property would not pass to the children until after their parents had died.

30. [130]

    Nor is there anything in counsel’s point that sale of the property itself might not have been mentioned. Clearly if the children were not allowed to use the rental money for themselves, they could not have sold the property and taken the capital.

31. [131]

    In the end, I think the shared understanding evidence does provide further support for the Trustee’s case. But it is hardly necessary given the express evidence of what was said in 1989 and the objective evidence of the parties’ subsequent conduct.

32. [132]

    Taking these factors together, I am satisfied that the transfer of the Newtown property to the La Cava children in 1989 was not an absolute gift. Rather, it was made on the condition that it would be held by the children thereafter to apply the rent to servicing the mortgage debt and otherwise for the benefit of Vittorio and Gloria if needed.

33. [133]

    Counsel for Robyn did not argue that there was some sort of trust over a life estate in the property only (cf Dullow v Dullow (1985) 3 NSWLR 531). In any event, such a trust could not have arisen on the facts. Such a trust would only have covered the income from the property, but for reasons I have given the conditions imposed on the children extended to the property as a capital asset.

34. [134]

    Although counsel seemingly agreed that the question for determination was the intention of Vittorio and Gloria, that may not, strictly speaking, be the case outside of a purchase money resulting trust (which is not this case). The transfer was a bilateral transaction, and in accordance with usual contractual principles, the intention would normally be the intention manifested by both parties, rather than simply the transferor. But that would make no difference in the present case. It is clear from the evidence that the children accepted the transfer of the Newtown property subject to the conditions which were imposed on that transfer by the parents.

35. [135]

    On these findings, the present is virtually a case of an express trust for the benefit of Vittorio and Gloria. But if the conditions purported to impose a trust for a limited and specified purpose during their lifetimes, or for some sort of interest of the children after their death, it was ineffective for uncertainty (or because a non-charitable purpose trust is unenforceable).

36. [136]

    It follows that, upon the transfer of the Newtown property to the children, an automatic resulting trust arose in favour of Vittorio and Gloria. This conclusion excludes, or makes it unnecessary to consider, a resulting trust arising by presumption from the voluntary transfer.

Conclusions on parties’ claims

1. [137]

   I have concluded that upon transfer of the Newtown property to the six La Cava children, they held the property on resulting trust for their parents. Based on the concessions of counsel, the same conclusion follows for the Ultimo property and applies to Peter’s share of the properties in Robyn’s hands.

2. [138]

   There will need to be declarations to this effect. The NSW Trustee is also entitled to an account from each of the La Cava children, (or in Peter’s case from Robyn) for monies appropriated to them out of the rental account for their personal benefit. It will be necessary to consider whether this account is limited to a six-year period (Limitation Act 1969, s 15) or extends back for 12 years on the basis that it involves trustees appropriating trust property to themselves (Limitation Act 1969, s 47).

3. [139]

   It will also be necessary to consider administrative matters. These include:

   1. (1)

      whether, given that Gloria’s estate will benefit from the account to be taken, some further or different form of administration should be granted;

   2. (2)

      whether a new trustee should be appointed to the resulting trust to be declared by the Court for the purposes of the account, completion of other administrative tasks and ongoing administration of the resulting trust;

   3. (3)

      to what extent it will be necessary to lodge trust tax returns for the resulting trust, or to vary partnership of individual returns which have already been lodged covering the period up to 30 June 2025.

4. [140]

   On 25 September I issued to the parties a draft of the judgment to this point. I asked them to confer on the form of orders necessary to give effect to the conclusions which I have reached, on the other issues identified above which appeared to require further consideration, and on costs. The parties were also invited to identify any errors or omissions in the draft judgment.

5. [141]

   Settling the form of the final orders proved to be a complicated and lengthy task. Further short hearings took place on 3 and 31 October and 4 and 25 November at which various questions were debated, including costs. At the first of those hearings, it was accepted that the grant of administration at litem in favour of the NSW Trustee with respect to Gloria’s estate should be extended to a full grant of administration with the will annexed, and the Court has now made such a grant accordingly.

Form of orders

1. [142]

   In the end, the form of the orders to be made was agreed between the parties. The following comments are made by way of explanation.

2. [143]

   Declarations: The Court will declare that the La Cava children acquired and thereafter held the Newtown and Ultimo properties on resulting trust for their parents, and that Peter’s share passed to Robyn on the same terms. Strictly speaking there were two resulting trusts: one in favour of Vittorio, derived from his half share as a tenant in common in the Newtown property; and the other in favour of Gloria derived from her half share (the two shares were separate property: they were tenants in common, not joint tenants, and their shares were acquired at different times). I will refer to the two trusts as the “Parents’ Trusts”.

3. [144]

   Appointment of new trustee: It was common ground that, in order to facilitate the proper and efficient administration of the resulting trusts, the five surviving La Cava children and Robyn (“the Existing Trustees”) should be replaced as trustees by the NSW Trustee. A vesting order will be made in favour of the Trustee over the bank accounts containing the proceeds of the rental monies held prior to the Sale Trustees’ appointment, and over the Existing Trustees’ entitlements to the proceeds of sale of the Newtown and Ultimo properties.

4. [145]

   Account for rental income: The rental income was largely applied to expenditure on the properties. But, as already noted, there appear to have been some payments made for the benefit of the La Cava children, and, following Peter’s death, Robyn, individually. Those payments include payments for the plaintiffs’ costs of these proceedings. There will be an account for the purpose of identifying all such payments and requiring repayment of them.

5. [146]

   The account will be in common form. The La Cava children were in possession of the rental receipts with the consent of their parents. The making of payments from the rental monies for their own purposes may technically have been a breach of trust, but it is not suggested that it would justify an order for account on a wilful default basis.

6. [147]

   The account will apply to all rental or other income derived by the La Cava children from their ownership of the Newtown and Ultimo properties. It will include interest earned by them on that income. It will, however, only begin on 8 October 2018, being the date six years prior to the filing of the NSW Trustee’s cross-claim. The Trustee did not suggest that the account should go back any further than that.

7. [148]

   As already noted, income from the properties was treated for tax purposes as partnership income, and funds were then applied from the rent account to meet the additional tax liabilities incurred by the La Cava children as a result of the income from the “partnership” being attributed to them. At one point I canvassed with the parties the possibility of amending the relevant tax returns, and having the La Cava Children account back to the NSW Trustee for refunds received. But on reflection I think this would be an unwarranted complication. The “partnership” tax liabilities incurred by the La Cava children should be treated as liabilities of the Parents’ Trusts. It will be expressly provided that there is no obligation to account for monies paid out to discharge such liabilities.

8. [149]

   Nor will there be any obligation to account for monies applied for the benefit of Vittorio or Gloria during their lifetimes, or used for Gloria’s funeral or testamentary expenses. Instead, the income so applied will be treated as already having been accounted for.

9. [150]

   In theory, the obligation to repay monies applied by the La Cava children for their own purposes falls jointly and severally on all of them (or at least on those who were party to making the payment in question). But the NSW Trustee was satisfied with an order requiring only the recipient, or the person for whose benefit the payment was made, to account for it. The amounts payable, will, however, carry interest.

10. [151]

    Account from Sale Trustees: The Sale Trustees prima facie obligation is to divide the proceeds between the five surviving children and Robyn as the legal owners. But as a result of the appointment of the NSW Trustee as the new trustee, and the vesting order made in its favour, it is convenient to order that the Sale Trustees account directly for the proceeds to the NSW Trustee as trustee for the Parents’ Trusts. A specific order will be made providing for any further questions of remuneration to be dealt with between the Sale Trustee and the NSW Trustee, or otherwise by the Court.

11. [152]

    Indemnity for capital gains tax: In Ayshan v Abualadas (No 2) [2024] NSWSC 824, I had to consider the incidence of capital gains tax in a case where a constructive trust was decreed over a property to be sold under CA s 66G. I based myself on Australian Taxation Office Interpretative Decision 2009/19 (see [21]-[22]). The parties were content for me to proceed on the same basis in the present case.

12. [153]

    It seems that the appointment of the Sale Trustees (or perhaps the subsequent vesting of the Ultimo and Newtown properties in them) gave rise to a capital gain for the Existing Trustees as individual owners of one-sixth shares in the properties at law. On that basis they will each be assessable to capital gains tax on one-sixth of the difference between the cost base of each property and the net proceeds distributed by the Sale Trustees (which will in fact be paid to the NSW Trustee pursuant to the order for account to which I have just referred).

13. [154]

    This is a personal liability of each of the individual Existing Trustees. It is not a liability which falls upon the Sale Trustees themselves. It seems to me, however, that it is a liability imposed on the Existing Trustees in their capacity as trustees of the (now declared) Parents’ Trusts. It will therefore be declared that each of the Existing Trustees is entitled to indemnity, out of the sale proceeds in the hands of the Sale Trustees, or, after they have accounted to the NSW Trustee, out of the trust funds being administered by the NSW Trustee, against any additional capital gains tax liability incurred by them (that is, any liability beyond what they would have incurred had they not been liable to assessment for the capital gain). The declaration will also extend to any other liability or expense which the Existing Trustees have incurred as a result of their ownership and management of the properties, and for which they have not received credit in the account to be conducted.

14. [155]

    Undertakings: It seems likely that, as a result of the Newtown and Ultimo properties being vested in their children, Vittorio and Gloria would have received Commonwealth assistance towards their nursing home costs, and perhaps other social security benefits, to which they would not have been entitled had they held the legal title to the properties. The NSW Trustee accepted that, having sought and obtained equitable relief, the Trustee was obliged under the principle in Nelson v Nelson (1995) 184 CLR 538 to do equity by reimbursing the Commonwealth for any such social security benefits. Accordingly, the orders made by the Court will be conditional upon an undertaking being given by the NSW Trustee to reimburse the Commonwealth for those benefits.

15. [156]

    Ordinarily the Existing Trustees would not be obliged to hand over any of the trust assets in their hands until their right of indemnity from those assets (including their right of indemnity against CGT liabilities) had been fully satisfied. It is convenient for the available trust assets to be vested in, and transferred to, the NSW Trustee now. But so that the Existing Trustees are not left out of pocket, an additional undertaking will be required from the NSW Trustee, requiring it to pay any amounts payable under the Existing Trustees’ indemnity within 28 days of notification.

Costs

1. [157]

   As already noted, the proceedings began as an application under CA s 66G, with orders appointing the Sale Trustees being made on 19 May 2023. At that stage only the co-owners of the properties (the plaintiffs, Paul and Robyn) were parties.

2. [158]

   The possibility of the properties being subject to a trust did not arise until later. The plaintiffs’ statement of claim was filed on 3 July last year. Vittorio was joined as third defendant, with the NSW Trustee acting as his tutor, on 10 July. The NSW Trustee was directly joined as fourth defendant (representing Gloria’s estate) on 2 September. The cross-claim, brought by NSW Trustee as Vittorio’s tutor and in its own name as administrator of Gloria’s estate, was filed on 8 October.

3. [159]

   It is common ground that the general rule in s 66G proceedings, at least where sale or other realisation of the property in question is not opposed, is that all parties’ costs are paid out of the proceeds of sale: see, for example, Chetwynd v Rose [2021] NSWCA 193 at [120]. Such costs are assessed on the ordinary basis unless there is some special reason to award costs on some other basis (UCPR r 42.2).

4. [160]

   It was common ground that there was no reason for an award of indemnity costs in the s 66G part of these proceedings. The parties agreed that the costs of the plaintiffs, Robyn and Paul for the period up to 26 April last year should be paid, on the ordinary basis, out of the proceeds of sale of the properties.

5. [161]

   The area of dispute between the parties concerned the costs of the proceedings after that date. On the record, the outcome of those proceedings is clear. The plaintiffs’ claim failed. As already noted, it was abandoned by counsel on the first day of the hearing. The NSW Trustee’s cross-claim succeeded. That cross-claim had actively been opposed by Robyn, and the plaintiffs supported her, although counsel for the plaintiffs made only the briefest of final submissions. Paul did not submit to the cross-claim, although he did not appear to present any evidence or submissions to oppose it.

6. [162]

   Counsel for the NSW Trustee contended that the costs from 26 April last year onwards should follow the event in the ordinary way (Uniform Civil Procedure Rules r 42.1). On the approach I generally follow where there are principal proceedings and a cross-claim (see Southern Oil Refining Pty Ltd v Hydrodec Australia Pty Ltd (No 2) [2021] NSWSC 336), the Trustee’s costs of defending the plaintiff’s claim, together with the Trustee’s general costs of the proceedings, would be paid by the plaintiffs, with any additional costs solely attributable to the cross-claim being paid by the cross-defendants (that is, the four plaintiffs, Robyn and Paul).

7. [163]

   Counsel for the plaintiffs submitted that an inter partes costs order of this type would not be appropriate. Instead, the Court should follow one or other of two different approaches.

8. [164]

   Counsel’s first contention relied upon the rule in probate litigation that where the litigation has been caused by the conduct of the testator, the costs of all parties are usually be paid out of the estate. Counsel invited me to apply the rule by analogy and order that all of the parties’ costs be paid out of the proceeds of sale of the properties. Counsel for Robyn supported this contention.

9. [165]

   Counsel’s second contention fastened on the plaintiffs’ claim to have been (and the Court’s finding that they were) trustees of the properties. Counsel submitted that, as such, they should receive their costs out of the proceeds (and on a solicitor-client basis). If, contrary to counsel’s primary submission, the plaintiffs were ordered to pay the NSW Trustee’s costs on an inter partes basis, they should likewise have an indemnity out of the proceeds against that liability. No equivalent contention was advanced on Robyn’s behalf.

10. [166]

    Counsel for the plaintiffs began by referring me to what Ward P said in Maxwell v Maxwell (No 2) [2022] NSWSC 1146 at [11] and [13]:

11. [167]

    Counsel submitted that in the present case the La Cava parents had been the cause of the dispute about who was entitled to the fund (the proceeds of sale of the property). By failing to document the terms of the transfer of the Ultimo property to their children, they left the question of beneficial ownership uncertain.

12. [168]

    Counsel referred to G. E. Dal Pont & Ken Mackie, The Law of Succession (3rd ed, 2017) LexisNexis Butterworths at [23.2] where the author states that in order for a party to benefit from this exception to the general rule, the conduct of the party must have been reasonable and the litigation must have been for the benefit of the fund in question. Counsel submitted that both these conditions were satisfied in the present case.

13. [169]

    Counsel pointed out that, after questions as to the beneficial interests of the family members in the trust had been raised by the Court at the hearing in April last year (see [15] above), the plaintiffs took the lead in bringing that question before the Court for determination. They assumed the responsibility of formally pleading the facts and joining the NSW Trustee to the proceedings. They also obtained and presented extensive evidence which included affidavits from the available witnesses, including non-family witnesses such as Mr D’Agata and Ms Passas.

14. [170]

    As counsel noted, the plaintiffs’ pleaded claim was for a declaration that the properties were held on constructive trust. The plaintiffs did not claim them as their own. The evidence assembled by the plaintiffs was eventually presented, almost in its entirety, by the NSW Trustee after the plaintiffs’ claim had been abandoned. There was no challenge to the accuracy of the evidence; the Court’s ultimate decision depended upon what factual inferences and legal conclusions could be drawn from it. Counsel submitted that if the evidence had not been prepared by the plaintiffs, the NSW Trustee would have had to undertake the task.

15. [171]

    Counsel submitted that in these circumstances the plaintiffs’ conduct had been reasonable and for the benefit of the relevant fund (being the proceeds of sale of the properties). The benefit to the fund was identified as having its trust status determined and declared.

16. [172]

    Counsel for the NSW Trustee acknowledged that the plaintiffs’ claim was to have the properties declared to have been (and thus to have the proceeds of the properties declared to be) the subject of a constructive trust. But counsel submitted that it was too simple to say that, because the plaintiffs had been seeking a declaration of trust over the property, they were acting in a disinterested fashion.

17. [173]

    As counsel pointed out, the constructive trust for which the plaintiffs contended was a trust of a limited and unusual nature. The beneficial interests of both Vittorio and Gloria in the trust were said to be limited to amounts required to meet their care and maintenance requirements during their lifetimes.

18. [174]

    The evidence filed in support of the plaintiffs’ case sought to quantify, in financial terms, what Vittorio’s care and maintenance requirements would be for the rest of his life. Those requirements were identified as: nursing home accommodation fees; insurance (presumably health insurance); pharmaceutical expenses; and the NSW Trustee’s fees for administering Vittorio’s affairs. The expenses were estimated at $44,000 per annum. Assuming a life expectancy of five years, based on the life tables for a 90-year-old, this would be $220,000 for the rest of Vittorio’s life.

19. [175]

    As expressed in the submissions filed on the plaintiffs’ behalf prior to the hearing, the contention was that the properties (and hence the proceeds in the hands of the Sale Trustees) had been subject to a trust in favour of Vittorio and Gloria, but a trust whereby Vittorio and Gloria’s interest in the trust property was a “life interest equal to the money needed to fulfill” their maintenance and care needs. Declarations were sought that:

    1. (1)

       the five surviving La Cava children and Robyn each held a 1/6 interest in the proceeds of sale on trust for Vittorio for the remainder of his life time;

    2. (2)

       Vittorio’s beneficial interest in the property was “the amount of money required to maintain him for the remainder of his expected life, which the plaintiffs estimate is [$220,000]”; and

    3. (3)

       Gloria’s beneficial interest in the property had been extinguished upon her death and Vittorio’s interest would likewise be extinguished upon his death.

20. [176]

    In the plaintiffs’ submissions, it was said to follow that the five surviving La Cava children and Robyn were each entitled to a 1/6 share of the net proceeds of sale (then $4.032 million) after deducting the sum of $220,000 to fulfill the maintenance and care obligations owed to Vittorio. Although not stated expressly, the contemplation apparently was that the remaining monies would be paid out to the five surviving La Cava children and Robyn.

21. [177]

    Counsel for the NSW Trustee submitted that this claim, although cloaked in the language of a trust, was in substance a claim to receive more than 95% of the sale proceeds. The plaintiffs should not be seen as having acted altruistically.

22. [178]

    Counsel further noted that the plaintiffs’ claim was unceremoniously abandoned on the first day of the hearing. Presumably this was because advice had been received, following the difficulties with the claim which were exposed during the opening, that it was not maintainable.

23. [179]

    Counsel submitted that the plaintiffs could, and should, have realised this from the outset. Certainly, once the NSW Trustee had propounded its cross-claim, the plaintiffs could have submitted to that cross-claim and abandoned their own claim. Instead, they continued with it, amending it on more than one occasion. At no stage did they seek judicial advice. And even after (belatedly) abandoning their claim, they still clung to Robyn’s coat-tails and continued to oppose the relief sought by the NSW Trustee.

24. [180]

    Counsel submitted that this conduct was not reasonable. There was no justification from departing from the usual rule that the plaintiffs having failed in their claims and having been unsuccessful in opposing the relief sought by the NSW Trustee, should be subject to an inter partes costs order.

25. [181]

    In reply, counsel for the plaintiffs criticised the NSW Trustee’s position as unrealistic. The Court needed to bear in mind the position the parties had been in when the entitlement issue first arose last year. Counsel submitted that the NSW Trustee never would have been able to make its ultimately successful cross-claim if the plaintiffs had not been prepared to join the Trustee to the proceedings in the first place.

26. [182]

    As to the question of submitting to the cross-claim by the NSW Trustee, counsel pointed out that the Trustee’s cross-claim too had been amended in the course of the proceedings. It was only on 4 September, two business days before the hearing was due to begin, that the claim was amended so as to contend for a resulting trust arising from a failed express trust, which was the basis upon which it eventually succeeded.

27. [183]

    In my opinion there is a strong analogy with the present case and cases such as Lippe v Hedderwick and Anderson v Scrivener, cited by Ward CJ in Maxwell. In each of those cases the testator’s testamentary affairs had been left in such doubt as to make it reasonable for the defendant to oppose the plaintiff’s application for probate, albeit that the application ultimately succeeded (see Lippe at 154, 155; Anderson at [54]). In the present case, having failed to document the terms on which the Newtown property was to be held by their children, Vittorio and Gloria likewise left them with a legal accident waiting to happen. In that sense their conduct should be seen as the cause of the proceedings. As Ward CJ noted, the rule in probate proceedings is only an illustration of a wider principle. That wider principle must, in a proper case, apply equally to trust litigation which is required to clarify uncertainty attributable to the settlor’s conduct.

28. [184]

    It has been suggested that awards of costs to unsuccessful parties in probate litigation on the ground that the litigation was caused by the conduct of the testator should be made less frequently nowadays, because modern case management techniques reduce the justification for such awards (Fielder v Burgess [2014] SASC 98 at [57]-[65]; see also Roche v Roche (No 2) [2017] SASC 75 at [13]-[18]). Whatever the merits of that view may be as a general rule, I do not think it applies in this case. Once the s 66G order had been made and the properties had been sold, the question of entitlement to the proceeds had to be determined. The plaintiffs had no realistic means of avoiding the litigation.

29. [185]

    I also agree with counsel for the plaintiffs that the evidence which they presented was essential to the proper resolution of the entitlement issue. In my judgment, whatever other order might be made, it would be quite wrong for the plaintiffs to be left to bear their own costs of preparing that evidence.

30. [186]

    It is true that the plaintiffs did not merely put the relevant evidence before the Court. They advanced their own positive claim concerning the proceeds. But it is no objection that the plaintiffs contended for a result which would have been more favourable to them than other outcomes. The question is whether they were unreasonable in doing so.

31. [187]

    Nor do I think that it matters for present purposes that the plaintiffs’ claim was not based on judicial advice. The relevant principle entitles parties to their costs whether or not they are trustees. The question of judicial advice is, however, potentially relevant to the plaintiffs’ alternative claim for costs as trustees and I will return to it below.

32. [188]

    In my view the plaintiffs’ conduct in propounding their claim was reasonable. The evidence was limited and the inferences which might be drawn from it contestable. The proper legal conclusion was a matter of real uncertainty. The plaintiffs did not pursue their claim once its difficulties had been pointed out in the course of opening.

33. [189]

    With the benefit of hindsight, the plaintiffs might have abandoned their claim at an earlier stage. But this is unlikely to have made much difference. The NSW Trustee’s cross-claim was still being contested by Robyn (and reasonably so: see [192] below). As it happened, the plaintiffs’ written submissions addressed many of the relevant authorities in a way which saved the other parties from having to do so themselves.

34. [190]

    For my part, I am not sure why it should be necessary in a case where trust litigation is ultimately attributable to uncertainty caused by the settlors, and a party has behaved reasonably in participating in the proceedings, it should be necessary to establish, as well, that the trust fund has “benefited” from that party’s participation. However, if there is a requirement of “benefit”, then the authorities show that the resolution of the uncertainty concerning the party’s entitlements in the fund satisfies that requirement.

35. [191]

    Similar considerations apply to Robyn’s costs of the proceedings. Again, it does not matter that she was contending for absolute ownership of her share. She had no firsthand knowledge at all of the circumstances in which the properties had been acquired. She had no reason to know that the tax structure originally adopted by Vittorio and continued by Peter, her partner, was incorrect and the true structure was a trust.

36. [192]

    On the face of it, Robyn’s partner Peter owned a one-sixth share of both properties outright. I have no doubt that Robyn acted in complete good faith in transferring Peter’s shares of those properties into her own name, believing that she was entitled to them. Her defence of the ultimately successful claim by the NSW Trustee was responsible and proper, albeit unsuccessful. In my view she acted reasonably and (if this is necessary) to the ultimate benefit of the trust fund.

37. [193]

    It seems that for most of the period Paul was unrepresented. But if he has in fact incurred any costs in responding to the claim by the plaintiffs or the trustee, he should be entitled to recover them from the fund on the same basis as the other parties.

38. [194]

    I therefore conclude that all of the parties are entitled to an order for costs in their favour out of the fund, as agreed by the Sale Trustees or assessed. The entitlement is to costs on the ordinary basis (UCPR 42.2). Whether the plaintiffs should be entitled to indemnity costs depends upon the alternative basis for their claim, namely as trustees, to which I now turn.

39. [195]

    The special rules which apply to costs of a trustee derive from Chancery practice and have been the subject of some very well-known expositions. One is in the judgment of Kekewich J in Re Buckton; Buckton v Buckton [1907] 2 Ch 406. Another is the judgment of Lightman J in Alsop Wilkinson v Neary [1996] 1 WLR 1220. In the present case, counsel for the plaintiffs referred me to the judgment of Finkelstein J in Sons of Gwalia Ltd v Margaretic [2006] FCAFC 92 which was based on, among others, those two expositions of principle.

40. [196]

    Counsel relied upon the following statement by Finkelstein J at [5] and [7]-[9]:

41. [197]

    Counsel submitted that for the purposes of these rules, the plaintiffs should be seen as trustees in a “trust dispute” of the first kind, and were entitled to indemnity on that basis. They themselves, in the proceedings, had claimed to be constructive trustees of the Newtown and Ultimo properties. Although this claim had been abandoned, they had been found to be, and to have been throughout, trustees of the resulting trusts declared by the Court. Alternatively, even if the plaintiffs were not to be treated as trustees, the present case was a “trust dispute” of the second kind, rather than a “beneficiaries dispute” falling into the third class. That would, in counsel’s submission, still entitle them to indemnity.

42. [198]

    Counsel also relied on UCPR r 42.25. It has frequently been said that this rule reflects the previous Chancery rules concerning a trustee’s entitlements to costs. The rule provides (emphasis added):

43. [199]

    One question which can arise in considering a trustee’s right of indemnity for costs is the effect of a trustee’s failure to obtain judicial advice to bring or defend the relevant proceedings. The Court’s power to give such advice is now found in s 63 of the Trustee Act 1925 (“TA”). The question is addressed by the High Court in 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) 237 CLR 66; [2008] HCA 42.

44. [200]

    There is a further question about how the High Court’s analysis applies in the context of r 42.25. I discussed some of the authorities in Dixon v Dixon (No 2) [2022] NSWSC 944 at [53]-[67] and [74]-[79]. Counsel was content for me to proceed on the same basis here. Of particular relevance for present purposes is that failure to obtain advice, while not necessarily debarring a trustee from obtaining indemnity in due course, is a relevant factor in deciding whether the trustee has acted “unreasonably” for the purposes of r 42.25: at [78].

45. [201]

    As already noted, the plaintiffs did not obtain judicial advice before mounting their claim and, later, defending the claim by the NSW Trustee. Counsel sought to deal with this in two ways.

46. [202]

    Counsel’s first argument focused on the requirement in s 63(1) that advice must be sought in relation to the “management or administration of trust property”. Counsel pointed out that during the course of proceedings, there had been no finding that the Newtown and Ultimo properties were held on trust. That finding only came at the end of the proceedings. Counsel submitted that, although in the eye of the law the plaintiffs had always been trustees, at the relevant time there was no more than an “uncertain claim” and a “doubtful equity”. Counsel submitted that in those circumstances there would have been no jurisdiction to entertain an application by the plaintiffs for advice under s 63.

47. [203]

    Counsel’s second argument was that, even if there would have been jurisdiction for the plaintiffs to apply for judicial advice, as a matter of practice they would have been unable to obtain it. This was because, so counsel argued, judicial advice would not have been given in a case which was in substance about the “identity of the beneficiaries of the trust”. Robyn (and Paul) were denying that the Newtown and Ultimo properties had been held on trust at all. This was a “core disputed factual issue” which would have made the proceedings unsuitable for judicial advice. Counsel for the plaintiffs referred in particular to International Art Holdings Pty Ltd v Adams [2011] NSWSC 164 at [38].

48. [204]

    In response, counsel for the NSW Trustee argued, that, having regard to the claims made by the plaintiffs in the proceedings and the way they had conducted them once the Trustee’s cross-claim had been made, the plaintiffs had acted unreasonably as well as for their own advantage. Counsel also disputed the suggestion that it would not have been possible to obtain judicial advice. If necessary, counsel submitted, such advice could have been sought on specified factual assumptions.

49. [205]

    Neither counsel addressed me on whether the textual requirements for the application of r 42.25 were satisfied. But as at present advised, I do not think they were.

50. [206]

    The starting point is that, where it applies, r 42.25 confers on “a person” made party to proceedings “in the capacity of trustee” a (prima facie) entitlement to payment out of “the fund held by the trustee”. It has been said that the term “fund” is to be equated with the assets held by the trustee: Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic (No 3) [2017] NSWCA 109 at [39]. Presumably “the trustee” is the person who is the trustee of the fund when the rule comes to be applied at the end of the proceedings. In the present case that will be the NSW Trustee, as trustee for the Parents’ Trusts, and “the fund” will consist of the monies vested in the Trustee under the vesting orders which are to be made.

51. [207]

    The “person” made party to the proceedings “in the capacity of trustee” need not be the same person as “the trustee” who holds “the fund”. The language was clearly framed to cover cases of former trustees, for instance. But in my view, even if not currently a trustee of the trust fund, the person in question must have been made party to the proceedings “in the capacity of” a trustee of that trust fund. It is difficult to accept that r 42.25 could create an entitlement to payment of costs out of the assets of a trust in favour of a party merely because that party happened to be trustee of some other trust: cf Agusta Pty Ltd v Official Trustee in Bankruptcy as Trustee of Estates of Gustavo Ferella and Angelo Ferella [2009] NSWCA 129 at [47]-[48].

52. [208]

    In the present case, the plaintiffs were parties to two separate “proceedings”. They were plaintiffs in the proceedings on their claim. They were also cross-defendants in the proceedings on the NSW Trustee’s cross-claim.

53. [209]

    So far as the proceedings on the plaintiffs’ claim were concerned, I do not think that the plaintiffs were “joined in the capacity of” trustees at all for the purpose of r 42.25. Although they alleged themselves to be trustees of a constructive trust, that was not the trust found by the Court; the relevant “fund” has been found by the Court to be held on the terms of a quite different trust.

54. [210]

    So far as the plaintiffs’ costs of the NSW Trustee’s cross-claim are concerned, the plaintiffs have indeed been found by the Court to have been trustees of the relevant “fund”. But in their capacity as cross-defendants, the plaintiffs denied the Trustee’s claim, and continued to do so even after they had withdrawn their own.

55. [211]

    The term “trustee” is not otherwise defined for the purposes of r 42.25: Photios v Photios [2019] NSWCA 158 at [88]. Somewhat ironically, counsel for the plaintiffs’ own argument concerning the application of TA s 63(1) gives reason for questioning whether the term can apply to persons who are only alleged to be trustees, especially if they are denying their trustee status. It seems strange to think that r 42.25 could create an entitlement, even if only a prima facie one, for a person to recover the costs of denying the relevant trust. In the end, however, it is unnecessary to reach a final conclusion on this question.

56. [212]

    Assuming for the sake of argument that the plaintiffs were made parties to the NSW Trustee’s cross-claim “in the capacity of trustee[s]”, I think that in defending that cross-claim they “acted unreasonably” for the purposes of r 42.25(2)(a).

57. [213]

    I have, of course, already found that for the purposes of the rule concerning trust litigation caused by the settlor, the plaintiffs acted reasonably in their conduct of the proceedings (both their own claim and the defence of the cross-claim). But for the purposes of that rule, what is in issue is reasonableness as a litigant. Rule 42.25(2)(a) is concerned with reasonableness as a trustee, which is a different and higher standard. Reasonableness for that purpose must be judged by reference to the interests of the trust, and, in particular, the interests of the beneficiaries who will bear the costs of the trustee’s action, win, lose, or draw: see Macedonian Orthodox Community Church; Dixon at [69]).

58. [214]

    Even if the plaintiffs were trustees for the purpose of r 42.25 but were not trustees for the purposes of s 63(1), and they were therefore unable to obtain judicial advice, I think that reasonableness would have required them to consider whether, in the interests of the beneficiaries of the trust alleged by the NSW Trustee, they should defend the Trustee’s cross-claim. There nothing to suggest that they in fact did so.

59. [215]

    Had the plaintiffs considered that question, I do not think they could reasonably have concluded that they needed to incur the costs of defending the cross-claim in the interests of the trust. There was no apparent advantage to the beneficiaries from such expenditure. And in any event the cross-claim was already being actively defended by Robyn (and inactively by Paul). The plaintiffs, if acting as trustees, could, and should, have entered a submitting appearance to the cross-claim.

60. [216]

    I also consider that in defending the cross-claim the plaintiff were in substance acting for their own benefit. They were contending that the properties were held by the registered proprietors outright, and not subject to any trust. Taking such a line was plainly for their own benefit and contrary to the interests of the beneficiaries under the alleged resulting trust.

61. [217]

    Finally, if I were wrong in these views, it would be necessary to look more closely at the basis on which costs would be assessed. As Hallen J pointed out in The Estate of Stanislaw Budniak; NSW Trustee & Guardian v Budniak No 2 [2015] NSWSC 1317 at [41]-[42], r 42.25(1) does not in terms deal with the basis upon which costs payable under the rule are to be assessed. That leaves the default rule under r 42.2 (costs on the ordinary basis) to apply unless the Court orders otherwise. And, his Honour observed:

62. [218]

    It is commonly assumed that a trustee’s entitlement to costs under r 42.25 is an entitlement to costs on an indemnity basis. This is a natural assumption to make if the rule is understood as a reflection of Chancery practice. Under the Chancery rule, trustees are entitled to indemnity for all expenses properly incurred in the execution of the trust (see also TA s 59(1)), and an entitlement to costs incurred in litigation is only a particular instance of that: see Re Beddoe; Downes v Cottam [1893] 1 Ch 547 at 554-555 per Lindley LJ.

63. [219]

    But if r 42.25 is to be understood as a rule dealing with costs, operating more favourably to trustees than the Chancery rule, then other considerations may apply. In that event, if I considered that the rule mandated an order in favour of the plaintiffs, then, having regard to what I have said about their conduct of the litigation, including the lack of benefit to the trust fund, I would exercise my discretion to limit the order to costs assessed on the ordinary basis.

64. [220]

    In passing, I should note that if Finklestein J intended to say in the passage from Sons of Gwalia which I have quoted that non-trustee parties to “trust disputes” of the first or the second kind are generally entitled to recover their costs on an indemnity basis, I am not sure that I agree. As already noted, the Chancery rule giving indemnity costs to trustees is a particular application of their general right of indemnity. There seems to me to be no reason why this should be extended to persons who are not trustees and have no such general right of indemnity for their expenditure.

65. [221]

    If, through the efforts of a party who is not a trustee, assets are recovered for the benefit of the trust, that party will usually have priority out of the assets so recovered for their costs, on an indemnity basis, of doing so. But this a different matter. It is based on the idea that the beneficiaries should not obtain any advantage from the efforts of the party in question until that party’s expenditure has been fully recouped. On no view does this principle apply to the plaintiffs in the present case.

66. [222]

    For these reasons, I consider that the plaintiffs are not entitled to recover their costs of the proceedings on an indemnity basis under r 42.25 (or under Chancery practice). In ordering that the plaintiffs are to be paid their costs on the ordinary basis out of the proceeds of sale of the Ultimo and Newtown properties, I shall be “order[ing] otherwise” for the purposes of r 42.25, if it applies.

67. [223]

    The NSW Trustee is in a somewhat different position, so far as the application of the trustee rules are concerned, from that of the plaintiffs. The Trustee has brought litigation which has resulted in recovery of property of the benefit of the Parents’ Trusts. But in acting as tutor for Vittorio and administrator of Gloria’s estate, the Trustee is, in any event, acting in a representative capacity and will be entitled to indemnity for any costs not recovered under the party-party costs order made against the proceeds of the properties. I do not think it is necessary to make any order in these proceedings concerning those additional costs.

Orders

1. [224]

   The orders of the Court are:

   1. (1)

      Conditional on the third and fourth defendants/Cross-Claimants (Cross-Claimants) giving the following undertakings:

   2. (2)

      The Court declares that Marisa La Cava Catanese, Stephen Michael La Cava, Vicki Paula Boscov, Sandra Maria Casey, Paul Gerard La Cava, and the late Peter La Cava:

   3. (3)

      The Court declares that Marisa La Cava Catanese, Stephen Michael La Cava, Vicki Paula Boscov, Sandra Maria Casey, Paul Gerard La Cava, and the late Peter La Cava:

   4. (4)

      The Court declares that, in respect of the shares of the Newtown Property and the Ultimo Property held by the late Peter La Cava which were transmitted to Robyn Ann McCleary on 25 January 2023, those shares were impressed with:

   5. (5)

      The Court orders that:

   6. (6)

      The Court orders that, subject to order 7, the Sale Trustees account to the Replacement Trustee for the proceeds of sale of those properties (Newtown and Ultimo Sale Proceeds), including any interest accrued thereon, net of any proper disbursements and remuneration due to them, with such account provided in the ordinary course after payment of their remuneration and disbursements.

   7. (7)

      The Court directs that, to the extent the Sale Trustees claim any remuneration not previously approved by the Court:

   8. (8)

      The Court orders that the Existing Trustees (in the case of Robyn Ann McCleary, both as the executor of the estate of the late Peter La Cava and in her own personal capacity) account, on a common form basis, to the Replacement Trustee as trustee of the Vittorio Trust and the Gloria Trust for the rent and other income received by them from the Newtown Property and the Ultimo Property for the period from 8 October 2021 down to the date of these orders, provided that:

   9. (9)

      The Court declares that the Existing Trustees are entitled to be indemnified:

   10. (10)

       The Court orders that the costs of all parties, on the ordinary basis, be paid out by the Sale Trustees of the Newtown and Ultimo Sale Proceeds.